Question

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?

Answer 1

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:

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