Question

Karen and Keith have a $300,000, 30-year (360-month) mortgage. The mortgage has a 7.2% nominal annual interest rate. Mortgage payments are made at the end of each month. What is the monthly payment on the mortgage?

	A.	$2,036.36
	B.	$1,759.41
	C.	$3,105.25
	D.	$1,833.33
	E.	$2,055.29

Answer 1

We are given,

Present value(PV) = $300,000

Time = 30 years

No of periods = 30 * 12 = 360

Annual interest rate = 7.2%

Monthly interest rate = 7.2%/12 = 0.6%

Monthly payments(PMT) = ?

Pv = pmt * PVIFA(r,n)

PVIFA = Present value Interest Factor of Annuity

PVIFA(r,n) = [1-(1+r)^-n]/r 1)

We can calculate pmt in excel,

Present Value	300,000
rate	0.60%
no periods	360
pmt	2,036.36	(=PMT(0.60%,360,-300000,0)

Hence the answer is option a) $2,036.36.

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