Question

"a. To purchase a house, you take out a 35 years mortgage. The present value (loan amount) of the mortgage is $317,932. The mortgage charges an interest rate / year of 9.18%. What is the annual payment required by this mortgage? How much of each year's payment goes to paying interest and how much reducing the principal balance? (USE GOAL SEEK) b. Consider a 35 years mortgage for $442,264 as in the previous section. What would happen if the interest rate / year dropped from 9.21% to 7.95%. How much of each year's payment goes to paying interest vs. how much goes to reducing the principal under the two interest rates? (USE DATA TABLE)"

Answer 1

The mortgage calculations for both the 35-year term and interest rate changes involve financial mathematics. The Goal Seek function is used to find the required annual payment,

Step-by-step explanation:

The correct answer is option Mathematics, a subject that often involves calculations of loan payments and the effects of interest rates on loans - a key concept in financial mathematics.

To calculate the annual payment required by a mortgage, we use a financial formula that takes into account the loan amount, the interest rate, and the number of periods.

The solution to this problem involves using the Goal Seek function, a tool provided in spreadsheet software like Microsoft Excel, which iteratively changes one variable to achieve a desired outcome for another variable.

In the given example of a 35-year mortgage at a 9.18% annual interest rate, Goal Seek would find the necessary annual payment to ensure the mortgage is paid off in full by the end of the term.

For the second part, when comparing mortgage payments at different interest rates, a Data Table is useful. It allows for the calculation and comparison of mortgage payments at the original interest rate of 9.21% and the new rate of 7.95%. This shows how much of each payment is allocated towards interest versus principal under each scenario, illustrating the impact of interest rate changes on mortgage repayment.