Problem 9-44 Loan repayment [L04] Larry Davis borrows $80,000 at 14 percent inte
ID: 1172022 • Letter: P
Question
Problem 9-44 Loan repayment [L04] Larry Davis borrows $80,000 at 14 percent interest toward the purchase of a home. His mortgage is for 25 years a. How much will his annual payments be? (Although home payments are usually on a monthly basis, we shall do our analysis on an annual basis for ease of computation. We will get a reasonably accurate answer.) (Do not round intermediate calculations Round your final answer to 2 decimal places.) b. How much interest will he pay over the life of the loan? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Input variables: $80,000 Mortgage amount Interest rate Term of mortgage 14 percent 25 years (assume annual payments) Solution and Explanation: Annual payment $11,639.87 b. Total interest over life of loan $210,996.82Explanation / Answer
Yearly payment = [P * R * (1+R)^N ] / [(1+R)^N -1] Using the formula: Principle P 80,000.00 Rate of interest per period: Annual rate of interest 14.000% Frequency of payment = Once in 12 month period Numer of payments in a year = 12/12 = 1 Rate of interest per period R 0.14 /1 = 14.0000% Total number of payments: Frequency of payment = Once in 12 month period Number of years of loan repayment = 25 Total number of payments N 25*1 = 25 Period payment using the formula = [ 80000*0.14*(1+0.14)^25] / [(1+0.14 ^25 -1] Yearly payment = 11,639.87 Total interest pay: Total payments = 11639.87*25 2,90,996.75 Less principle amount 80,000.00 Interest payment 2,10,996.75
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