Question

A couple purchasing a home budget $1600 per month for their loan payment. If they have $30,000 available for a down payment and are considering a 25-year loan, how much can they spend on the home at each of the following rates? (Round your answers to the nearest cent.)

(a)    6.3% compounded monthly
(b)    7.1% compounded monthly

Answer 1

Req a:
Annual rate =6.3%
Monthly rate = 6.3 / 12 = 0.525%
Monthly payment					1600
Multiply: Annuity PVF at 0.525% for 300 periods					150.8834
Present value of payment					241413.4
Add: Down payment					30000
Maximum amount that can be spend					271413.4
Req b:
Annual rate = 7.1%
Monthly rate = 7.1 /12 = 0.5917%
Monthly payment					1600
Multiply: Annuity PVF at 0.5917% for 300 periods					140.2137
Present value of payment					224342
Add: Down payment					30000
Maximum amount that can be spend					254342