Question

You are thinking about buying an apartment so you go to the bank to get a preapproved mortgage. The

bank decides that you can afford to make payments of $1250 per month starting one month after you

borrow the money. You have decided that you will pay back the mortgage over 25 years. How much will

the bank lend you if the interest rate is 5% compounded semi-annually.

Answer 1

a	Present value of annuity=	P* [ [1- (1+r)-n ]/r ]
P=	Periodic payment	1,250.00
r=	Rate of interest per period
	Annual interest	5.00%
	Number of payments per year	12
	Interest rate per period	0.05/12=
	Interest rate per period	0.417%
n=	number of periods:
	Number of years	30
	Periods per year	12
	number of payments	360
	Present value of annuity=	1250* [ (1- (1+0.00417)^-360)/0.00417 ]
	Present value of annuity=	232,852.02

Answer is:

232,852

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