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In: Finance

Mr. Bill S.​ Preston, Esq., purchased a new house for ​$120,000. He paid $30,000 upfront and...

Mr. Bill S.​ Preston, Esq., purchased a new house for ​$120,000. He paid $30,000 upfront and agreed to pay the rest over the next 10 years in 10 equal annual payments that include principal payments plus 8 percent compound interest on the unpaid balance. What will these equal payments​ be?

a.  Mr. Bill S.​ Preston, Esq., purchased a new house for ​$120,000 and paid ​$30,000 upfront. How much does he need to borrow to purchase the​ house?

Solutions

Expert Solution

a.Borrowings=(120,000-30,000)=$90,000

b.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate

90,000=Annuity[1-(1.08)^-10]/0.08

90,000=Annuity*6.7100814

Annuity=90,000/6.7100814

=$13412.65(Approx)

jeff jeffy answered 2 years ago
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