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Category > Business & Finance Posted 29 Jul 2017 My Price 8.00

Suppose that you take out a $250,000 house

Suppose that you take out a $250,000 house mortgage from your local savings bank. The bank requires you to repay the mortgage in equal annual installments over the next 30 years. It must therefore set the annual payments so that they have a present value of $250,000. Thus,

PV =mortgage payment X 30-year annuity factor =$250,000

Mortgage payment =$250,000/30-year annuity factor

Suppose that the interest rate is 12% a year. Then

30-year annuity factor = [1/.12 – 1/.12(1.12)30] = 8.055

Mortgage payment =250,000/8.055 =$31,037

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Status NEW Posted 29 Jul 2017 03:07 PM My Price 8.00

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