Score: 0 of 9 pts 9 of 11 (0 complete) Hw Score: 0%, 0 of 100 pts Problem 6-63 (

Question

Score: 0 of 9 pts 9 of 11 (0 complete) Hw Score: 0%, 0 of 100 pts Problem 6-63 (algorithmic) Question Help A 30-year fixed rate mortgage is available now at 7% APR. Monthly payments (360 of them) will be made on a S200 000 loan. The realtor says that if you wait several months to obtain a mortgage the APR could be as high as 8%, and the monthly payments will ump by 14%. Is th e reators claim true? lf not, what percent increase in monthly payment will result from this 1% increase in APR? The increase in monthly payment will be % (Round to one decimal place.)

Explanation / Answer

ANSWER:

We need to find the monthly payment at 7% and then at 8% for 360 months with the present value of $200,000

1) when the rate is 7% per year or 7% / 12 per month.

n = 360 months and pv = $200,000

monthly payment = pv(a/p,i,n)

monthly payment = 200,000(a/p,7%/12,360) = 200,000 * 0.0067 = $1,330.60

2) when the rate is 8% per year or 8% / 12 per month.

n = 360 months and pv = $200,000

monthly payment = pv(a/p,i,n)

monthly payment = 200,000(a/p,8%/12,360) = 200,000 * 0.0073 = $1,467.53

increase in monthly payment with 1% increase in interest rate = $1,467.53 - $1,330.6 = $136.92

% increase in monthly payment with 1% increase in interest rate = (increase in monthly payment with 1% increase in interest rate / 1,330.6 ) * 100 = (136.92 / 1330.6) * 100 = 0.1029 * 100 = 10.29% or 10.3% ( rounded to 1 decimal place)

so the realtor's clam is false as 1% increase in interest rate will lead to 10.3% increase in monthly payments.

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