If compounded monthly, with monthly payments then the 60th installment is worth $4679.20.
Compound interest, also known as interest on principal and interest, is the practice of adding interest to the principal amount of a loan or deposit. It occurs when interest is reinvested, or added to the loaned capital rather than paid out, or when the borrower is required to pay it so that interest is generated the next period on the principal amount plus any accumulated interest. In finance and economics, compound interest is common.
Computation of payments:
Information regarding FRM:
Present Value of mortgage = $1,000,000
Interest Rate = 4.25%
Monthly Rate = Rate / 12
Periods = 30 * 12 = 360
Payments = [=PMT(Monthly Rate, Periods, -Present value,0)] = $4,919.40
Therefore, the payment is = $4,919.40
Computation of the real value of the 60th payment is:
Real Value = Payment / (1 + Periodic Inflation Rate)^ No. of periods
Real Value = 4919 / [1 + (1% / 12)]⁶⁰ = 4679.20
Hence, the value of the 60th payment is $4679.20
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