Question

1. Assume you are looking to buy a house $200,000 with a 20-year mortgage at 12%, estimate the monthly mortgage payment and the equity portion of the payment for the first and the second months.

Answer 1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

200000= Cash Flow*((1-(1+ 12/1200)^(-20*12))/(12/1200))

Cash Flow = 2202.17 = monthly payment

Monthly rate(M)=	yearly rate/12=	1.00%	Monthly payment=	2202.17
Beginning balance (A)	Monthly payment	Interest = M*A	Principal paid	Ending balance
200000.00	2202.17	2000.00	202.17	199797.83
199797.83	2202.17	1997.98	204.19	199593.63

Where

Interest paid = Beginning balance * Monthly interest rate

Principal = Monthly payment – interest paid

Ending balance = beginning balance – principal paid

Beginning balance = previous Month ending balance