Question

You can afford $1,200 per month as a house payment. If you can get a home loan at 8.9% interest for 15 years (paid monthly), how expensive of a home can you afford? In other words, what amount loan can you pay off with $1,200 per month for 15 years?

Round your answer to two decimal places. Do not include the $ sign in your answer.

You purchased a new washer and dryer for $1,250.76 (including sales tax and delivery). Financing was used for the full purchase price and the payments are $140.83 per month for 12 months. What is the cost for the loan? Your Answer:

Answer 1

• $119009.08
• $439.20

Explanation:

You want the principal value of a 15-year loan at 8.9% that has payments of $1200 per month, and you want the cost of financing $1250.76 if the payments are $140.83 per month for 12 months.

House loan

The amortization formula can be solved for the principal value:

P = A(n/r)(1 -(1 +r/n)^-(nt))

A is the $1200 monthly payment, n = 12 payments per year, r = 8.9% interest rate, t = 15 years.

P = 1200(12/0.089)(1 -(1 +0.089/12)^-(12·15)) ≈ 119009.08

You can afford a loan for $119009.08.

Appliance loan

The cost of the loan is the difference between the total of payments and the amount of the loan:

12×140.83 -1250.76 = 439.20

The cost of the loan is $439.20.

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