Use the following to answer questions 24-2 5: Rob and Laura wish to buy a new ho

Question

Use the following to answer questions 24-2 5: Rob and Laura wish to buy a new home. The price is S187,500 and the plan to put 20% down. New Rochelle Savings and Loan will lend them the remainder at a 10% fixed rate for 30 years, with monthly payments to begin in one month. 24. How much will their monthly payments be? A) $1,316.36 B) $1,325.99 C) $1,512.56 D) $1,645.45 E) $1,760.45 21 What will the outstanding balance of the loan be after ten years? A) $99,610 B) $135,467 C) $136,407 D) $139,144 E) $170,509

Explanation / Answer

Answer:24 A)$1316.36

Payment = LoanAmt x (rate x (1 + rate) ^ months)/((1+rate)^months -1)

loanamt = 187500 - 20% (37,500) = $150000

rate = .10/12 (to make it monthly)
months= 360 (30 years)

payment = 1,316.36 (using the formula)

Answer:25 C)$136407

outstanding balance of loan after 10 years:

Substitute 240 for the months
You know the payment already - now find the Loanamount as if 10 years are gone

do some algebra:
if Payment = LoanAmt x (rate x (1 + rate) ^ months)/((1+rate)^months -1)
then
LoanAmt = Payment / (rate x (1 + rate) ^ months)/((1+rate)^months -1)
(divide both sides by the ratio part
Use 1,316.36 for the payment
and 240 for months
the result will be a loan amount of $136,407

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