Question

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

Answer #1

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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