encountered a problem on SCH practice exams Vol 1: Page 150, Q34. this is really confusing… when computing ERAT, the mortgage balance is the ORIGINAL BORROWING AMOUNT? it is financed with a 7% annual rate loan with 80% of initial outlay - 80%*40000000=32000000 in the answer it states: ERAT=selling price - selling cost - mortgage balance - tax on sale other components can I understand, except it says mortgage balance is 32000000?? isn’t it to be the mortgage balance on the 5th year when the asset is sold out? cannot really get it…

somebody pls help…

I don’t have access to the question, but is it an interest only mortgage? If so, then there is no amortization.

If I remember correctly the loan was INTEREST-ONLY which explains why the mortgage balance would be the same as the initial amount. This also implies tha the debt-service cost is the same as the interest cost.

as far as i remember…morgage balance dat goes in calculating erat is outsanding mortgage balance…which shud ideally be the principal outstanding…right ?? correct me if i am wrong ?

Do you have the full original question?