Question

You want to finance your new home with a 15 year fixed rate mortgage. The APR is 4%.

You know the maximum monthly payment you can afford is $2550. What is the maximum amount of mortgage loan you can take out? (Hint: you need to figure which TVM element you need to calculate here)

You must round up your answer to integer. (For example, if you answer is 530035.67, you must write 530036)

Answer 1

Max Amount of loan is PV of instalments..

PV of Annuity:

Annuity is series of cash flows that are deposited at regular intervals for specific period of time.

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
r - Int rate per period
n - No. of periods

Particulars	Amount
Cash Flow	$            2,550.00
Int Rate	0.3333%
Periods	180

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
= $ 2550 * [ 1 - [(1+0.0033)^-180]] /0.0033
= $ 2550 * [ 1 - [(1.0033)^-180]] /0.0033
= $ 2550 * [ 1 - [0.5494]] /0.0033
= $ 2550 * [0.4506]] /0.0033
= $ 344739.98
Answer is 344740.