Question

How much will you pay on a 25 year, $400,000 mortgage if you make monthly payment at the beginning of month? Interest is 3.5%. Answer is $1,997

Answer 1

Information provided:

Present value (PV)= $400,000

Time (N)= 25 years*12 = 300 months

Interest rate (I/Y)= 3.5% / 12 = 0.2917% per month

The question is concerning finding the amount of annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode.  Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

Enter the below in a financial calculator to compute the monthly payment:

PV= -400,000

N= 300

I/Y= 0.2917

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 1,996.6707.

Therefore, the amount of annuity due is $1,997.

                                                                                                                                    

In case of any query, kindly comment on the solution.