Emily Morrison purchased a new house for $190,000 and paid $40,000 upfront. How much does she need to borrow to purchase the house?

(Annuity payments)

Emily Morrison purchased a new house for $190,000. She paid $40,000 upfront and agreed to pay the rest over the next 10 years in 10 equal annual payments that include principal payments plus 12 percent compound interest on the unpaid balance. What will these equal payments be?

a. Emily Morrison purchased a new house for $190,000 and paid $40,000 upfront. How much does she need to borrow to purchase the house?

Solutions

Expert Solution

a.Borrowings=(190,000-40,000)=$150,000

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

150,000=Annuity[1-(1.12)^-10]/0.12

150,000=Annuity*5.65022303

Annuity=150,000/5.65022303

=$26547.62(Approx)

jeff jeffy answered 2 years ago

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