Question

1. If you accept a mortgage of $500,000 for 30 years and at an interest rate of 5%, what is the monthly payment?

Answer 1

An Annuity is a series of payments of fixed amounts and at fixed intervals.

These can be of two types:

· Ordinary Annuity – payment is made at the end of each period.

· Annuity Due – Payment is made at the beginning of each period

The Present Value of an ordinary annuity can be calculated as:

Where C denotes the fixed annuity amount,

r denotes the rate of interest, 5% annually or 0.00417 compounded monthly

n denotes the number of periods, 30 years or 360 installments

Substituting the above values, calculate C:

Thus, the monthly payment will be $ 2,684.11