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Ahat [919]
3 years ago
9

you purchase a house and take out a $650,000 loan with a 30-year term at 4.5% nominal annual interest rate (monthly compounding)

. If you pay off the loan at the end of 5 years (after your 60th payment) how much will you have to pay the bank at that time to the nearest penn?
Business
1 answer:
Paladinen [302]3 years ago
5 0

Answer:

$811,238.97

Explanation:

First we have to obtain the effective monthly rate.

A 4.5% nominal annual interest rate is equivalent to a 0.37% monthly rate.

Now we can find the future value of the $650,000, which is the value that you will have paid after 5 years.

The formula is:

FV = PV (1 + i)^{n}

Where:

  • FV = Future value
  • PV = Present value
  • i = interest rate
  • n = number of compounding periods of the interest rate.

Finally, we plug the amounts into the formula:

FV = 650,000 (1 + 0.0037)^{60} \\FV = 811,238.97

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