You need $300,000 to buy a house. You decide to borrow money from the bank to...
You need $300,000 to buy a house. You decide to borrow money from the bank to finance your mortgage. Assume that the bank charges a fixed annual interest rate of 4.50 percent and the term of the loan is 30 years. If you are required to make an equal payment every year for 30 years to pay off the loan, what is the annual payment? (Note that banks typically require monthly mortgage payments. For this problem, however, lets assume for simplicity that annual payments can be made.)
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
300,000=Annuity[1-(1.045)^-30]/0.045
300,000=Annuity*16.28888854
Annuity=300,000/16.28888854
=$18417.46(Approx).
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