(Related to Checkpoint 6.1) (Annuity payments) Mr. Bill S. Preston, Esq., purcha

Question

(Related to Checkpoint 6.1) (Annuity payments) Mr. Bill S. Preston, Esq., purchased a new house for $150,000. He paid $20,000 upfront and agreed to pay the rest over the next 20 years in 20 equal annual payments that include principal payments plus 9 percent compound interest on the unpaid balance What will these equal payments be? a. Mr. Bill S. Preston, Esq, purchased a new house for $150,000 and paid $20,000 upfront. How much does he need to bormrow to purchase the house? $130000 (Round to the nearest dollar.) b. If Bill agrees to pay the loan over the next 20 years in 20 equal end-of-year payments plus 9 percent compound interest on the unpaid balance, what will these equal payments be? Round to the nearest cent.)

Explanation / Answer

b) The unpaid balance of 130000 has to be paid in annuity payments over the next 20 years Present value of an annuity = C[(1-(1/(1+r)^t))/r] where C is the annuity payment r is the interest rate that is .09 t is the year that is 20 Present value of annuity = 130000 130000 C*[(1-(1/(1.09)^20))/.09] C 14241.04 Intermediate calculations 5.60 0.17843089 0.82156911 9.128545669 14241.04175 The equal payments will be $14241.04

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