Question

24) Your business finance teacher asks you to compare a 15-year fixed rate at 5.75 percent to a 30-year fixed rate at 6.25 percent on a house priced to sell quickly for $185,400. If the prospective buyer has set a monthly house payment in her budget to pay no more than $1,300 a month, which mortgage should she take out after computing the monthly payment under cach plan? A) The 15-year fixed at 5.75 percent with payments of $1,538.82 B) The 30-year fixed at 6.25 percent with payments of $1,100.80 The 30-year fixed at 6.25 percent with payments of $1,142.06 D) The 15year fixed at 5.75 percent with payments of $1,600.00

Answer 1

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Answer 24
PMT= Monthly payments	PV*i
	1-(1+i)^-n
IF rate 5.75%
PMT=	Monthly payment= ?
PV=	Loan amount= $ 185,400.
n=	no. of payments= 15*12=180
i	5.75%/12= 0.00479166666666667
PMT	185400*0.00479166666666667
	1-(1+0.00479166666666667)^-180
PMT	888.375
	1-(1.00479166666666667)^-180
PMT	888.375
	1-0.422975859570811
PMT	888.375
	0.57702414
Monthly payments	1,539.58

IF rate 6.25%
PMT=	Monthly payment= ?
PV=	Loan amount= $ 185,400.
n=	no. of payments= 30*12=360
i	6.25%/12= 0.00520833333333333
PMT	185400*0.00520833333333333
	1-(1+0.00520833333333333)^-360
PMT	965.625
	1-(1.00520833333333333)^-360
PMT	965.625
	1-0.15410299895385
PMT	965.625
	0.845897
Monthly payments	1,141.54

Option C is closest to my calculation.

So answer is option C, 6.25% fixed rate for 30 years, with payments of $ 1,142.06.