Question

Your best friend's parents want to buy a home in the Worcester County, but they don’t know the exact amount of money that they can afford to borrow. They can afford monthly payments of $ 1,800. A friendly bank in Worcester has indicated that they can borrow money at 6% fixed rate for 30 years with monthly payments. They can afford to borrow:

Answer 1

	Pmt	Monthly Payment	$1,800
	Nper	Number of months of mortgage	360	(30*12)
	Rate	Monthly interest rate=(6/12)%=	0.50%
	PV	Amount they can afford to borrow	$300,224.91	(Using PV function of excel with Rate =0.5%, Nper=360,Pmt=-1800)
		Thi also can be determined by using Factor Formula
		Present Worth Factor(PWF):(P/A,i,N)=(((1+i)^N)-1)/(i*((1+i)^N))
		i=Interest Rate=0.005(0.5%)
		N=Number of months=360
		PWF=(P/A,0.5%,360)=((1.005^360)-1)/(0.005*(1.005^360))=			166.7916
		Amount They Can borrow=PWF*1800=	$300,224.91