Question

A customer can pay GH➣900.00 per month on a mortgage payment.

Interest rate is 12% annually compounded continuously, and mortgage

terms is 15 years. Determine the maximum amount the customer can pay within

the period.​

Answer 1

$74,748.11

Explanation:

In order to make use of the amortization formula, we need to find the equivalent monthly interest rate.

When 12% interest is compounded continuously, the annual multiplier is ...

e^0.12 ≈ 1.127497

The equivalent multiplier when the interest is compounded monthly is the 12th root of this,

(e^0.12)^(1/12) = e^0.01 ≈ 1.0100502 = 1 + r

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The amortization formula tells us that monthly payment amount A will pay off principal P in n months:

P = A(1 -(1 +r)^-n)/r = $900(1 -1.0100502^-180)/0.0100502

P = $74,748.11

The customer can pay off a 12% loan of $74,748.11 at the rate of $900 per month for 15 years.