To buy your first home, you take out a 15 year (fully amortizing) mortgage for $350,000 which requires equal yearly payments. The effective annual interest rate is 3.6%. How much principal do you pay off in year 2?
$18,653.49 |
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$42,557.10 |
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$30,605.29 |
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None of these |
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$11,951.81 |
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
350,000=Annuity[1-(1.036)^-15]/0.036
350,000=Annuity*11.43592972
Annuity=350,000/11.43592972
=$30605.29(Approx).
Hence interest payment for 1st year=$350,000*3.6%=$12600
Hence principal paid in 1st year=(30605.29-12600)=$18005.29
Hence principal owed after 1st year=(350,000-$18005.29)=$331,994.71
Hence interest payment for 2nd year=$331,994.71*3.6%=$11951.81(Approx)
Hence principal paid off in year 2 =$30605.29-$11951.81
=$18653.49(Approx).
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