Question

In: Accounting

John finances 234000 with a 15/5 ballon mortgage at 5.3%. How much will he pay for...

John finances 234000 with a 15/5 ballon mortgage at 5.3%. How much will he pay for principal and interest over the life of the loan?
A. 246,823.20
B. 289,222.05
C. 289,998.48
D. 340,282.80

Solutions

Expert Solution

Loan Repayment Schedule for 5 years:

Annual Repayment = Total amount of loan / Present Value Annuity factor for the amortisation period @ 5.3%

= 234000 / Present Value Annuity Factor for 15 years @ 5.3%

= 234000 / 10.1723

= 23,003.65.

So, total amount of repayment in the form of instalments = 23,003.65 * 5

= 115,018.25

Amount of prinicipal remained at the end of 5th year which is to be repayed a then = 175,067.10

Total amount of principal and interest paid over the life of the loan = 115018.25 + 175067.10

= 290,085.35

The answer is nearer to C. 289,998.48

The difference can be because of the rounding off of decimals.

Hence, the answer is C. 289,998.48.


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