Question

If Gerry is approved for a $150,000 mortgage at 7.5 percent interest for a 30-year loan, what would the

monthly payment be?
$1081.96
$1069.58
$1032.32
$1048.82

Answer 1

One can use the formula for a compound annuity

A = (1 - (1 + i)^-n) / i

n = payments = 360 (12/yr * 30 yr)

i - interest rate = .075 / 12 = .00625

The formula tells you what $1 / mo will be worth after 360 mos

A = (1 - 1.00625^-360) / .00625 = (1 - .10362) / .00625

A = 143.02

To have 150,000 after 30 yrs the monthly payment needs to be

150000 / 143.02 = 1048.82