The Johnsons have accumulated a nest egg of $50,000 that they intend to use as a

Question

The Johnsons have accumulated a nest egg of $50,000 that they intend to use as a down payment toward the purchase of a new house. Because their present gross income has placed them in a relatively high tax bracket, they have decided to invest a minimum of $2700/month in monthly payments (to take advantage of the tax deduction) toward the purchase of their house. However, because of other financial obligations, their monthly payments should not exceed $3300. If local mortgage rates are 5.5%/year compounded monthly for a conventional 30-year mortgage, what is the price range of houses that they should consider? (Round your answers to the nearest cent.)

least expensive?

most expensive?

Explanation / Answer

The formula that will be used in solving this problem is given below:

R = (amount of periodic payment)
P = (amount borrowed)
n = number of payments

i = the interest in decimal form.

Number of months in 30 years = 30 * 12 = 360 months

Interest rate = 5.5/(100*12) = 0.0045833 derrives form

Using the formula, PV = 2700* (1 - (1.000458333)^(-360))/0.000458333 = 895855.86$

House Amount = 895855.86 + 40000 = 935855.86$

In order to know the limit, you can put 3300$ in place of 2700 and add initial budget of 40000$

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