Question

Compare the monthly payments and total loan costs for the following pairs of loan options. Assume that both loans are fixed rate and have the same closing costs. You need a $80,000 loan. Option​ 1: a​ 30-year loan at an APR of7.15​%. Option​ 2: a​ 15-year loan at an APR of 6.75​%. Find the monthly payment for each option.

The monthly payment for option 1 is $----

The monthly payment for option 2 is $----

​(Do not round until the final answer. Then round to the nearest cent as​ needed.)

Answer 1

Option 1

Information provided:

Present value= $80,000

Time= 30 years*12 = 360 months

Interest rate= 7.15%/12= 0.5958% per month

The monthly payment is calculated by entering the below in a financial calculator:

PV= -80,000

N= 360

I/Y= 0.5958

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 725.79.

Therefore, the amount of monthly payment is $725.79.

Option 2

Information provided:

Present value= $80,000

Time= 15 years*12 = 180 months

Interest rate= 6.75%/12= 0.5625% per month

The monthly payment is calculated by entering the below in a financial calculator:

PV= -80,000

N= 180

I/Y= 0.5625

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 707.93.

Therefore, the amount of monthly payment is $707.93.