Seven years ago, Mr

Finance Oct 06, 2020

Seven years ago, Mr. & Mrs. Birches took out a 30-year loan to buy a $975,000 home at 6% APR and monthly payments. They borrowed the full amount of the house (no down payment). How much do they owe now?

Expert Solution

Computation of Present Value using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Present Value = ?

Rate = 6%/12 = 0.5% compounded monthly

Nper = (30-7) years*12 months = 23 years*12 months = 276 months

PMT = 0

FV = $975,000

Substituting the values in formula:

=-pv(0.5%,276,0,975000)

PV or Present Value = $246,133.98

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