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In: Finance

John purchased a new house for $500,000. He paid 20 percent down and agreed to pay...

John purchased a new house for $500,000. He paid 20 percent down and agreed to pay the rest over the next 25 years in 25 equal annual payments at 6 percent compound interest. What will be his annual payments?

Solutions

Expert Solution

Ans. Here we need to calculate Equal Annual Instalment :

For this, formula for  Equal Annual Instalment = [P x R x (1+R)^N]/[(1+R)^N-1],

Here P = Principal Amount,

R = Interest Rate

N = Time period

Principal amount after down payment (P) = 500000 - 20% of 500000 = 400000

R = 6%

N = 25

Equal Annual Instalment = [400000 X 6% X (1+6%)^25] / [(1+6%)^25-1]

Calculative above, the answer will be = $ 31,290.69


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