Question

Ian has the option of purchasing or renting a home. The purchase option requires a loan of $100,000 for a 20-year term at a 4.9% interest rate. The rental option requires a monthly rental payment of $725. Using the loan amortization formula, how much money does Ian save per month if he purchases the home instead of renting it?

Answer 1

Answer:

The correct answer to the following question will be "70.56".

Step-by-step explanation:

The given values are:

Loan requires, PV = $100,000

Years = 20

Number of months, n = 240

Rate interest = 4.90000%

Monthly rate, r = 0.408333%

Monthly rental payment = $725

As we know,

$PV=PMT\times (\frac{1}{r})\times [1-[\frac{1}{(1+r)^n}]]$

On putting the values in the above formula, we get

⇒  $100000=PMT\times (\frac{1}{0.004083333})\times [1-(\frac{1}{(1+0.004083333^{240})})]$

⇒  $100000=PMT\times 152.8014557$

⇒  $PMT=\frac{100000}{152.8014557}$

⇒  $PMT=654.44$

Now,

$Saving \ Per \ Month =Rent \ per \ month-PMT$

On putting the values, we get

⇒                             $=725-654.44$

⇒                             $=70.56$