Question

You have applied for a job. As part of its evaluation process, you must take an examination of the time value of money analysis covering the following questions. Please show your work including each step by using your calculator OR Excel. (Identify N, I/Y, PV, PMT, and FV)

You have $60,000 to put as a down payment on a new house that costs $480,000, and you have been quoted the following terms: 5% Annual Percentage Rate (APR), for 30 years. If you decide to purchase this home, what will your monthly payment be? Additionally, over the life of the loan what would your total interest expense be?

Answer 1

Information provided:

Price of the house = $480,000

Down payment = $60,000

Mortgage = Puture value (PV)= $480,000 - $60,000 =  $420,000

Time (N)= 30 years*12 = 360 months

Interest rate (I/Y)= 5% / 12 = 0.4167% per month

The question is solved by first calculating the monthly payment.

Enter the below in a financial calculator to compute the monthly payment:

PV= -420,000

N= 360

I/Y= 0.4167

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 2,254.65.

Thereby, the monthly payment is $2,254.65.

Total interest expense :

= ($2,254.65*360) - $480,000

= $811,674.29 -  $480,000

= $331,674.29.

In case of any query, kindly comment on the solution.