4. Phil and his wife, Traci, both work and have a combined gross income of $165,000...

4. Phil and his wife, Traci, both work and have a combined gross income of $165,000 per year. Phil used the Total Expense Ratio to calculate an affordable monthly payment of $2100. Suppose the couple can get a 30 year loan with a rate of 4.5%, how much can they afford to borrow? a. Write the Excel formula used.____________________________________ b. How much can they afford to borrow? __________________________

Expert Solution

Excel is the perfect tool for calculating the amount to borrow or for any financial transactions, being very intuitive and simple to work with. Working in the actuarial profession, present and future values play an important role in day to day calculations. Please find the formula used below to find the amount they can afford to borrow:-

=PV(4.5%,30,2100*12)

The output as you can see is -$410,480 which is the exact amount they can afford to borrow right now to keep up with the monthly payments.

If you want an even deeper understanding of the concepts involved or if you have further doubts, please let me know in the comments. I'll reply ASAP. Also do upvote! Thank you for posting a challenging problem.

orchestra answered 2 years ago

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