Question

Clair Walsh wishes to purchase​ a(n) $630,000 house. She has accumulated a $110,000 down​ payment, but she wishes to borrow $520,000 on a 25​-year mortgage. For​ simplicity, assume annual mortgage payments occur at the end of each year and there are no loan fees.

1.	What are Walsh​'s annual payments if her interest rate is​ (a) 44​%, (b) 66​%, and​ (c) 10%, compounded​ annually?
2.	Repeat number 1 for a 20-year mortgage.
3.	Suppose Walsh had to choose between a 25-year and a 20-year mortgage, either one at​ a(n) 66​% interest rate. Compute the total payments and total interest paid on​ (a) a 25​-year mortgage and​ (b) a 20-year mortgage.

Answer 1

Calculation of Amount if interest is Compounding	(A= P(1+r)^t)
A	Total Amount
P	Principal
r	Rate of Interest
t	Time
Answer to Question 1
	Amount (In $)	Amount (In $)	Amount (In $)
Principal (i.e Amount to be borrowed)	520000	520000	520000
Rate of Interest	66%	44%	10%
Time of Mortgage	25	25	25
Compounding (a Year)	1	1	1
Total Amount in formula	520000 * (1+.66)^25	520000 * (1+.44)^25	520000 * (1+.10)^25
Total Amount	165,464,771,780	4,732,227,838	5,634,047
Annual Payment	6,618,590,871.19	189,289,113.52	225,361.88
Answer to Question 2
	Amount (In $)	Amount (In $)	Amount (In $)
Principal (i.e Amount to be borrowed)	520000	520000	520000
Rate of Interest	66%	44%	10%
Time of Mortgage	20	20	20
Compounding (a Year)	1	1	1
Total Amount in formula	520000 * (1+.66)^25	520000 * (1+.44)^25	520000 * (1+.10)^25
Total Amount	165,464,771,780	4,732,227,838	5,634,047
Annual Payment	8,273,238,588.99	236,611,391.90	281,702.35
	Amount (In $)	Amount (In $)
Principal (i.e Amount to be borrowed)	520000	520000
Rate of Interest	66%	66%
Time of Mortgage	25	20
Compounding (a Year)	1	1
Total Amount in formula	520000 * (1+.66)^25	520000 * (1+.66)^25
Total Amount	165,464,771,780	165,464,771,780
Annual Payment	6,618,590,871.19	8,273,238,588.99
Total Interest	165,464,251,780	165,464,251,780