Say you bought a house for $325,000 with 20% down, and financed it from a bank f
ID: 2577287 • Letter: S
Question
Say you bought a house for $325,000 with 20% down, and financed it from a bank for a 15-year term at 3.25% interest per year compounded monthly. If you paid an extra $900 every year (end of 12th month) along with the regular month-end payments, which will be true from the following?
A- You will be able to cut off 72 payments from the loan.
B- You will have to make 170 payments of $1,826.94
C- You will have to make 171 monthly payments of $1,826.94, $900 yearly payments for 14 years, and make a 172nd payment at the end of the 172nd month of $402.37.
D- None of the above are true.
A- You will be able to cut off 72 payments from the loan.
B- You will have to make 170 payments of $1,826.94
C- You will have to make 171 monthly payments of $1,826.94, $900 yearly payments for 14 years, and make a 172nd payment at the end of the 172nd month of $402.37.
D- None of the above are true.
Explanation / Answer
Loan 325000 Down 20% 65000 Remaining 260000 b) $248,634.61 =PV((3.25%/12),170,-1826.94,0,0) Present value in case of b not equal to required present value so b is not true. c) I II III=I*II Cashflow Pv factor 900 0.9681 =1/((1+3.25%/12)^12) 871.26 900 0.9371 =1/((1+3.25%/12)^24) 843.43 900 0.9072 =1/((1+3.25%/12)^36) 816.50 900 0.8782 =1/((1+3.25%/12)^48) 790.42 900 0.8502 =1/((1+3.25%/12)^60) 765.18 900 0.8231 =1/((1+3.25%/12)^72) 740.75 900 0.7968 =1/((1+3.25%/12)^84) 717.09 900 0.7713 =1/((1+3.25%/12)^96) 694.19 900 0.7467 =1/((1+3.25%/12)^108) 672.02 900 0.7228 =1/((1+3.25%/12)^120) 650.56 900 0.6998 =1/((1+3.25%/12)^132) 629.78 900 0.6774 =1/((1+3.25%/12)^144) 609.67 900 0.6558 =1/((1+3.25%/12)^156) 590.20 900 0.6348 =1/((1+3.25%/12)^168) 571.35 Present value 9962.42 Present value of 171 payment $249,785.05 =PV((3.25%/12),170,-1826.94,0,0) Present value of 172 payment 252.6912554 =402.37/(1+(3.25%/12))^172 Total present value of all payments $260,000.17 So total present value is equal to required present value i.e 260000 Therefore answwer would be c Answer:c You will have to make 171 monthly payments of $1,826.94, $900 yearly payments for 14 years, and make a 172nd payment at the end of the 172nd month of $402.37.