Mr. Smith, Esq. purchased a new house for $90,000. He paid $30,000 upfront and a

Question

Mr. Smith, Esq. purchased a new house for $90,000. He paid $30,000 upfront and agreed to pay the rest over the next 20 years in 20 equal annual payments that include principal payments plus 11 percent compound interest on the unpaid balance. What will these equal payments be?

(There are 2 parts to this question, "a" and "b")

a. Mr Smith, Esq. purchased a new house for $90,000 and paid $30,000 upfront, How much does he need to borrow to purchase the house? $______(Round to the nearest cent)

b. If Bill agrees to pay the loan over the next 20 years in 20 equal end of year payments plus 11 percent compound interest on the unpaid balance, what will these equal payments be? $_____(Round to the nearest cent)

Explanation / Answer

Equal annual instalments = [P×r×(1+r)^n]÷[(1+r)^n-1]

P is Principal payable

r is interest rate

n is number of payments

= [$60,000×11%×(1+11%)^20]÷[(1+11%)^20-1]

= $7,534.54

a)

He needs to borrow $60,000

b)

equal payment = $7,534.54

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