In: Finance
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?
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