suppose a home buyer secures a bank loan of A dollars to purchase a house. If th

Question

suppose a home buyer secures a bank loan of A dollars to purchase a house. If the interest rate charged is r/year compunded monthly and the loan is to be amortized in t years, then the pricipal repayment at the end of i months is given by: B= f(A,r,t,i) =A[((1 (r/12))^i-1)/(1 (r/12))^12t-1] suppose the blakelys borrow a sum of 280000 from a bank to help finance the purchase of a house and the bank charges interest at a rate of 6%/yr. If the barkleys agree to repay the loan in equal installments over 30 yrs, how much will they owe the bank after the 60th payment ( 5 yrs)? the 240th payment (20 yrs)?

Explanation / Answer

given A = 280000

i = no of months

after 60 months:

i=60

r=0.06

t=30

   B=f(A,r,t,i)=A[((1?(r/12))i?1)(1?(r/12))(12t?1)]   

=    280000(1?(0.06/12))(60?1)(1?(0.06/12))(12?30?1)   =1259600

after 240 months :

i=240

   B=f(A,r,t,i)=A(1?(r/12))i?1(1?(r/12))(12t?1)   

=    280000(1?(0.06/12))(240?1)(1?(0.06/12))12?30?1   

= 510962

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