You sign a mortgage contract. You have enough cash to make a 20% down payment.Your monthly...

You sign a mortgage contract. You have enough cash to make a 20% down payment.Your monthly payments will be $1,200 for 30 yrs starting one month away from today. If the interest rate is 3% APR, whats the maximum value of the house you can afford.

355,784.07

284,627.26

356,673.53

285,338.83

287,659.18

Solutions

Expert Solution

PMT = $1200
Nper = 30 * 12 = 360
Rate = 3% / 12 = 0.25%
FV = 0

Loan amount can be calculated by using the following excel formula:
=PV(rate,nper,pmt,fv)
=PV(0.25%,360,-1200,0)
= $284,627.26

Loan amount = $284,627.26

Value of the house = $284,627.26 / (1 - 20%)
= $284,627.26 / 0.80
= $355,784.07

Value of the house = $355,784.07

jeff jeffy answered 2 years ago

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