Question

A bank loans a family $90,000 at 4.5% annual interest rate to purchase a house. The family agrees to pay the loan off by making monthly payments over a 15 year period. How much should the monthly payment be in order to pay off the debt in 15 years? Show all your calculations

Answer 1

Using it's formula, it is found that the monthly payment should be of $688.49 in order to pay off the debt in 15 years.

What is the monthly payment formula?

It is given by:

$A = P\frac{\frac{r}{12}\left(1 + \frac{r}{12}\right)^n}{\left(1 + \frac{r}{12}\right)^n - 1}$

In which:

• P is the initial amount.

• r is the interest rate.

• n is the number of payments.

For this problem, the parameters are given as follows:

A = 90000, r = 0.045, n = 15 x 12 = 180.

Hence:

r/12 = 0.045/12 = 0.00375.

Then we solve for A to find the monthly payment, as follows.

$A = P\frac{\frac{r}{12}\left(1 + \frac{r}{12}\right)^n}{\left(1 + \frac{r}{12}\right)^n - 1}$

$A = 90000(0.00375)\frac{(1.00375)^{180}}{(1.00375)^{180} - 1}$

A = $688.49

More can be learned about the monthly payment formula at https://brainly.com/question/22846480

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