Question

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In order to buy a house, Sebastian Cifuentes is going to borrow $450,000 today with a...

In order to buy a house, Sebastian Cifuentes is going to borrow $450,000 today with a 8 percent nominal annual rate of interest. He is going to make monthly payments over 25 years. Assume full amortization of the loan. If he pays an extra $500 toward principal each month, what will be the ending balance after two monthly payments?

A. $449,050

B. $448,047

C. $445,027

D. $450,012

E. $473,463

Solutions

Expert Solution

Answer is: B. $448,047

Solution:

Present Value                            450,000
Rate 8%
Monthly rate 0.67%
Number of periods (25 * 12 months)                                    300
Monthly payment                                3,473
Month Opening Balance Principal Interest Payment (+ 500) Ending Balance
1                            450,000                      973                    3,000                                         3,973                      449,027
2                            449,027                      980                    2,994                                         3,973                      448,047

Excel formulas:

Formula to find Monthly payment without excel:

Where,
PVA = Present value of annuity
A = Annuity or payment
i = Interest rate in decimal form
a = Number of payments in a year
n = Number of years

Since he pays $500 extra toward principal, the monthly payment will be $3473 + 500 =  $3,973

jeff jeffy answered 1 year ago
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