information to solve for questions #1 Use the following to You just acquired a m
ID: 2796410 • Letter: I
Question
information to solve for questions #1 Use the following to You just acquired a mortgage in the amount of 3. made at the end of each month for thirty years. 5350.000at 0.5%permothinterest. Equal -1. What is the annual percentage rate (APR) on this loan? a. b. c. d. e. 0.5% 5.0% 0.6% 6.0% 2.6% 2. What is the effective annual rate (EAR) on this loan? a. 5.52% b. 4.55% c) 6.17% d. 6.34% e. 7.09% >3. If you paid $200 extra each month, how much can you save in interest payments compared to the original loan schedule? (hint: first you will need to find the total interest payments from the original loan schedule) a. approx. 77,000 b. approx. 95,000 c. approx. 25,000 d. approx. 16,000 e approx. 42,000 HiExplanation / Answer
1) APR = 0.5% x 12 = 6.00%
2) EAR = (1 + 0.5%)^12 - 1 = 6.17%
3) Monthly payment can be calculated using PMT function on a calculator
N = 12 x 30 = 360, I/Y = 0.5%, PV = 350,000, FV = 0 => Compute PMT = $2,098.43
Total interest paid = 2,098.43 x 360 - 350,000 = 405,434
With 200 more in monthly payment, no. of payment can be calculated using N function
I/Y = 0.5%, PMT = 2,298.43, PV = 350,000, FV = 0 => Compute N = 287.3
Total interest paid = 2,298.43 x 287.3 - 350,000 = 310,340
Difference in interest paid = $95,093
Hence, b is correct.
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