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Homework answers / question archive / You've decided to buy a new house for $650,000
You've decided to buy a new house for $650,000. You will put a downpayment of 20% of the purchase price of the house. The bank will loan you the rest at an interest rate of 3.75% [APR] for a 15-year loan. How much will be your monthly payment?
Select one:
a. More than $5,500
b. Less than $1,500 per month
c. $2,000 to $2,500
d. $2,500 to $3,000
e. $4,000 to $4,500
f. $5,000 to $5,500
g. $3,500 to $4,000
h. $3,000 to $3,500
i. $1,500 to $2,000
j. $4,500 to $5,000
Q13: After one year, how much have you paid in interest?
Select one:
a. $35,000 to $40,000
b. $5,000 to $10,000
c. $10,000 to $15,000
d. $30,000 to $35,000
e. More than $50,000
f. $15,000 to $20,000
g. $25,000 to $30,000
h. $20,000 to $25,000
i. $40,000 to $50,000
j. 0 to $5,000
Q14: After one year, how much have you paid in principal?
Select one:
a. $20,000 to $25,000
b. $35,000 to $40,000
c. $25,000 to $30,000
d. $30,000 to $35,000
e. $40,000 to $50,000
f. More than $50,000
g. 0 to $5,000
h. $15,000 to $20,000
i. $10,000 to $15,000
j. $5,000 to $10,000
Computation of Monthly Payment using PMT Function in Excel:
=pmt(rate,nper,-pv,fv)
here,
PMT = Monthly Payment = ?
Rate = 3.75%/12
Nper = 15 years*12 months = 180 months
PV = $650,000*(1-20%) = $520,000
FV = 0
Substituting the values in formula:
=pmt(3.75%/12,180,-520000,0)
PMT or Monthly Payment = $3,781.56
So, the correct option is G "$3,500 to $4,000".
Computation of Amount paid in Interest after One Year:
Interest = Total Payment in Year 1 - Principal Paid in Year 1
= ($3,781.56 * 12 months) - $26,328.14
= $45,378.68 - $26,328.14
Interest = $19,050.54
So, the correct option is F "$15,000 to $20,000".
Workings:
Computation of Loan Balance after 1 year using PV Function in Excel:
=-pv(rate,nper,pmt,fv)
Here,
PV = Loan Balance after 1 Year = ?
rate = 3.75%/12
Nper = (15-1) Years*12 months = 168
PMT = $3781.56
FV = 0
Substituting the values in formula:
=-pv(3.75%/12,168,3781.56,0)
PV or Loan Balance after 1 Year = $493,671.86
Principal Paid in year 1 = $520,000 - $493,671.86 = $26,328.14
Computation of Principal paid after 1 Year:
As computation above,
Principal Paid in year 1 = $520,000 - $493,671.86 = $26,328.14
The correct option is C "$25,000 to $30,000".
