Question

You decide to borrow $350,000 to build a new home. The bank charges an interest rate of 2% to be compounded quarterly. If you pay back the loan over 30 years, what will your quarterly payments be? (rounded to the nearest dollar)

Answer 1

Loan amount = 350000

Quarter rate = 0.02/4 = 0.005

Number of payments = 30*4 = 120

We know that,

Loan Amount = Sum of Present value of all the quarterly payments discounted at quarter rate.

350000 = Quarterly Amount * ( 1/(1+0.005)^1 + 1/(1+0.005)^2 + 1/(1+0.005)^3 + 1/(1+0.005)^4 + 1/(1+0.005)^5 + 1/(1+0.005)^6 + 1/(1+0.005)^7 + 1/(1+0.005)^8 + .................... 1/(1+0.005)^119 + 1/(1+0.005)^120 )

350000 = Quarterly Amount * 90.07

Quarterly Amount = 3885.72 Answer

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answered by: anonymous