Question

Use Rule of Thumb 4.3 to estimate the monthly payment on a loan of $300,000 at an APR of 5% over a period of 25 years.

A) $1,800
B) $1,900
C) $2,000
D) $2,100

Answer 1

The closest estimate for the monthly payment on a loan of $300,000 at an APR of 5% over 25 years is $1,800, as this figure nears the payment for a 30-year term which is $1,798.65.

Step-by-step explanation:

To estimate the monthly payment on a loan of $300,000 at an APR of 5% over a period of 25 years using Rule of Thumb 4.3, we can start by looking at the provided monthly payment estimation of $1,798.65. This figure appears to be based on a 30-year loan term. When we pay a slightly higher amount of $1,948.54 per month, we see that the loan can be paid off in about 24.5 years, which is less than the original 30 years, saving over $73,000 in total cost. From the options provided, we can deduce that the closest estimate to the given figure of $1,798.65 for a 30-year term is $1,800 per month (option A), which would be slightly less for a 25-year term.