Question

The bank has agreed to give you a mortgage for $400,000 to buy a new house. Current mortgage rates have an APR of 4% compounded semi-annually for a term of 25 years. How much of the third payment will go toward paying down principal?

Select one:

a. $786.90

b. $530.33

c. $481.34

d. $639.75

e. None of the above

Answer 1

Ans a. $786.90

		P =	Regular Payments
		PV =	Loan Amount
		r =	rate of interest
		n =	no of periods
		P =	r (PV)
			1 - (1 + r )^-n
		P =	(4%/12)*400000
			1 - (1 / (1 + 4%/12)^300))
		P =	1333.333333
			0.631508277
		P =	2104.08
	Beginning Balance	Interest	Principal	Ending Balance
1	$400,000.00	$1,322.36	$781.72	$399,218.28
2	$399,218.28	$1,319.77	$784.31	$398,433.97
3	$398,433.97	$1,317.18	$786.90	$397,647.06