Question

Sam and Jenny have been married for one year, and are planning to buy a house in Sydney for $1 million. They will borrow $700,000 from a bank. The interest rate on the loan is 3.60% per annum, compounding monthly. The loan is for 30 years, and they have to make monthly repayments to the bank, the first payment being exactly one month from today. What is the amount of the monthly repayment?

Select one:

a. $3,303.78

b. $4,546.45

c. $4,458.91

d. $3,182.52

Answer 1

The amount is computed as shown below:

Present value = Monthly payment x [ (1 – 1 / (1 + r)n) / r ]

r is computed as follows:

= 3.60% / 12 (Since the payments are on monthly basis, hence divided by 12)

= 0.3% or 0.003

n is computed as follows:

= 30 x 12 (Since the payments are on monthly basis, hence multiplied by 12)

= 360

So, the amount will be computed as follows:

$ 700,000 = Monthly payment x [ (1 - 1 / (1 + 0.003) 360 ) / 0.003 ]

$ 700,000 = Monthly payment x 219.9516611

Monthly payment = $ 700,000 / 219.9516611

Monthly payment = $ 3,182.52 Approximately

So, the correct answer is option d.

Feel free to ask in case of any query relating to this question