Question

Use an amortization schedule. A 30-year $400,000 mortgage has a fixed mortgage rate of 4 percent. In the first month, the total mortgage payment is $____, and $____ of this amount represents payment of interest. In the second month, the principal repayment is $_____.

Select one:

A. 1,910; 1,331; 577

B. 1,910; 1,333; 579

C. 1,928; 1,412; 518

D. 1,928; 1,414; 514

Answer 1

In Amortisation, Monthly amortisation amounts can be calculated using the following formula: P*(1+r)^n*r/(((1+r)^n)-1). Here P is Loan amount, r is interest rate per period, n is total number of periods. From given data, P is $400000, r= 4%/12= 0.33% per month, n is 30*12= 360 months. On substituting, Monthly amortisation amount= 400000*(1.0033)^360*0.0033/(1.0033^360-1)= 1910.

out of this, calculating interest amount for the first period is I=P*r*t= 400000*0.33%*1= 1333. So, Principal part will be 1910-1333= 577.

Interest on 2nd payment is P*r*t= 399423*0.33%*1= 1331. Principal part will be 1910-1331= 579.

So, Total Mortagage payment is $1910, and $1333 of this amount represents payment of interest. In the second month, the principal amount is $579.