Question

1. A borrower obtains a $150,000 reverse annuity mortgage with monthly payments over 10 years.  If the interest rate of the mortgage loan is 8%, what is the monthly payment received by the borrower? (A)
2. 1. $820
   2. $863
   3. $1,250
   4. $1,820

Answer is A. PLease help me explain how they got it using financial calculator step

Answer 1

Borrowed $150000

Interest rate 8%

Monthly payments for 10 years =(10×12)=120 months.

Start by dividing (8÷100)=0.08 by 12 to find that the monthly rate equals .0067

Next add 1 to .0067 to get 1.0067

Then multiply 10 years by 12 payments per year to find that your loan consists of 120 monthly payments.

Next raise 1.0067 to the negative 120th power to get 0.4487

Next substract 0.4487 from 1 to get 0.5513

Now divide .0067 by 0.5513 to get 0.01215309

Finally multiply 0.01215309 by $150000 to find monthly payment to be $ 1820 not $820.