Question

1. What are the monthly payments for a $100,000 mortgage amount, 8 percent interest rate, and a 30-year term?

A - 8,883

B - 740

C - 734

D - 8,000

2. You are borrowing $10,000 to purchase a car. You plan to make monthly payments for 24 months, and the interest rate is 12%. What is your monthly payment?

A - 471

B - 1,285

C - 371

D - 5,075

Answer 1

Monthly payment = Loan amount / PVIFA (Monthly rate, No. of months)

where, PVIFA = present value interest factor annuity

where, r is the periodic (monthly) rate, n is no. of periods (months)

1) Monthly rate = 8% / 12 = 0.66666666%, No. of months = 30 x 12 = 360

Monthly payment = $100,000 / PVIFA (0.66666666%, 360) = $100,000 / 136.2834951728 = $734 (option c)

2) Monthly rate = 12% / 12 = 1%, No. of months = 24

Monthly payment = $10,000 / PVIFA (1% , 24) = $10,000 / 21.24338726 = $471 (option A)