78 Other Financial Tools
BEAR-CH3.DOC BA Real Estate Guidebook Bob Fedorisko Revised: 08/29/96 9:19 AM Printed: 09/28/99 1:21 PM
Page 78 of 20
In a situation like this, the investor is buying the right to
collect the stream of payments for the remaining term of
the loan. Since both the interest rate and payment amount
are set by the terms of the original contract, the only way
to increase the yield is to discount the current unpaid
balance.
Steps
Keystrokes
Display
Clear TVM values.
# -
0.00
Set P/Y and C/Y to 12.
#
+
12
j
j
C/Y =
12.00
12.00
Enter original term.
10
0
TRM=
10.00
Enter interest rate.
8
1
I% =
8.00
Enter amount of
original note.
25
q 2
LN =
25,000.00
Compute payment.
$ 3
PMT=
-
303.32
Recall number of
payments in original
note and store.
] # * T g
MEM=
120.00
Enter number of
payments already
made.
36
# *
N
=
36.00
Compute current
unpaid balance.
$ 4
FV =
-
19,460.72
Recall original
number of payments
] g
MEM=
120.00
Calculate number of
remaining payments,
and save as N.
X ] # * j
# *
N
=
84.00
Set FV to zero and
enter required yield.
0
4
12
1
I% =
12.00
Compute discounted
present value.
$ 2
LN =
17,182.55
Pricing a Note to Meet a Required Yield
You sold a house where the seller carried back a $25,000
second lien at 8% for ten years. After 36 payments, the
seller contacts you to see if he can sell his note. You
explain that you know an investor who might be
interested, but requires a yield of 12% on investments.
Background
Solution
