Let’s say that we have a 20-ye
Let’s say that we have a 20-year mortgage with an original loanbalance of $150,000 at 7% interest per year. How much money (i.e.,balance) do you still owe after the 7th year of the loan? (The loanis compounded monthly)
| . |
1. $129,385 |
|
| 2. |
Cannot be determined |
|
| 3. |
$118,902 |
|
| 4. |
$133,722 |
Answer:
| Step 1 : | Calculation of monthly payment | |||||
| EMI = [Px R x (1+R)^N]/[(1+R)^N-1] | ||||||
| Where, | ||||||
| EMI=Equal Monthly Payment | ||||||
| P= LoanAmount | ||||||
| R=Interest rate per period =7%/12 =0.5833333% | ||||||
| N=Number of periods =20*12 =240 | ||||||
| = [$150000×0.0058333333 x (1+0.0058333333)^240]/[(1+0.0058333333)^240-1] | ||||||
| = [$874.999995( 1.0058333333 )^240] / [(1.0058333333 )^240 -1 | ||||||
| =$1162.95 | ||||||
| Step 2: | Calculation of loan balance after 7 years payment | |||||
| PresentValue Of An Annuity | ||||||
| =C*[1-(1+i)^-n]/i] | ||||||
| Where, | ||||||
| C= CashFlow per period | ||||||
| i =interest rate per period =7%/12 =0.583333% | ||||||
| n=numberof period =(20-7) *12 = 156 | ||||||
| =$1162.95[ 1-(1+0.00583333)^-156 /0.00583333] | ||||||
| =$1162.95[ 1-(1.00583333)^-156 /0.00583333] | ||||||
| = $1162.95[(0.5964) ] /0.00583333 | ||||||
| =$1,18,902.06 | ||||||
| \ | Correct Answer =$118902 | |||||
| NOTE: ASK YOURQUERIES.PLEASE DO UPVOTE | ||||||
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