The Johnsons have accumulated a nest egg of $50,000 that they intend to use as a
ID: 2646854 • Letter: T
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 $2200/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 $2800. If local mortgage rates are 2.5%/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
Least Expensive
Loan Amount = pv(rate,nper,pmt,fv)
rate = 2.5%/12
nper = 30*12 = 360
pmt = 2200
fv = 0
Loan Amount = pv(2.5%/12,360,2200,0)
Loan Amount = $ 556,791.61
Price of House = Loan Amount + Down Payment
Price of House = 556791.61 + 50000
Price of House = $ 606,791.61
Most expensive
Loan Amount = pv(rate,nper,pmt,fv)
rate = 2.5%/12
nper = 30*12 = 360
pmt = 2800
fv = 0
Loan Amount = pv(2.5%/12,360,2800,0)
Loan Amount = $ 708,643.86
Price of House = Loan Amount + Down Payment
Price of House = 708643.86 + 50000
Price of House = $ 758,643.86
Answer
least expensive $ 606,791.61 most expensive $ 758,643.86Related Questions
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