Steve is buying home that costs $500,000. You have been offered a 30-year mortgage that requires a 20% down payment for the house. The loan is to be repaid in equal monthly installments. The APR of the mortgage is 4%. Compute the EAR and the amount of your monthly payment on the mortgage. Show all calculations. you need to find the amount of the monthly payment in two different ways: 1) using the built-in Excel function 2) using the annuity formula
Home Cost =$500,000
Down payment = 20%
Loan Amount =400,000
1 By Excel
Loan Amount(pv) | 400000 |
nper | 30 |
RATE | 0.04 |
=PMT(RATE/12,nper*12,pv) | ($1,909.66) |
2..By Annuity formula
Home Cost =$500,000
Down payment = 20%
Loan Amount =400,000
Term (n)= 30*12=360
APR =4%
Monthly interest(r) =.04/12=0.0033
PVIFA (0.0033,360 year) =
= =208.89
EAR =400000/ 208.89
=400,000/208.89=$1914.883
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