Question

​(Related to Checkpoint​ 6.1) ​ (Annuity payments) Mr. Bill S.​ Preston, Esq., purchased a new house for

​$120,000.

He paid

​$25,000

upfront and agreed to pay the rest over the next

20

years in

20

equal annual payments that include principal payments plus

9

percent compound interest on the unpaid balance. What will these equal payments​ be?

a.  Mr. Bill S.​ Preston, Esq., purchased a new house for

​$120,000

and paid

​$25,000

upfront. How much does he need to borrow to purchase the​ house?

​$nothing  

​(Round to the nearest​ dollar.)

Answer 1

Information provided:

Cost of the house=  $120,000

Down payment = $25,000

Mortgage = present value = $120,000 - $25,000 = $95,000

Therefore, I need to borrow $95,000.

present value = $120,000 - $25,000 = $95,000

Time= 20 years

Interest rate= 9%

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

PV= -95,000

N= 20

I/Y= 9

Press the CPT key and PMT to compute the amount of equal payment.

The value obtained is 10,406.92.

Therefore, the amount of equal payment is $10,406.92.