Question

The Flemings secured a bank loan of $240,000 to help finance the purchase of a house. The bank charges interest at a rate of 4%/year on the unpaid balance, and interest computations are made at the end of each month. The Flemings have agreed to repay the loan in equal monthly installments over 25 years. What should be the size of each repayment if the loan is to be amortized at the end of the term? (Round your answer to the nearest cent.)

$ _________

Answer 1

Bank loan = 240000

interest rate APR =4%

monthly rate (i) =4%/12 =0.003333333333

number of months in 25 years (n) = 25*12 = 300

Monthly Payment formula = P* i *((1+i)^n)/((1+i)^n-1)

240000*0.003333333333*((1+0.003333333333)^300)/(((1+0.003333333333)^300)-1)

=1266.808417

Monthly paymente would be $1266.81 to fully amortize the loan in 25 years