Homework Help: Finance

Posted by sweet on Saturday, October 23, 2010 at 12:59pm.

Consider the following scenario: John buys a house for $150,000 and takes out a five year adjustable rate mortgage with a beginning rate of 6%. He makes annual payments rather than monthly payments.
Unfortunately for John, interest rates go up by 1% for each of the five years of his loan (Year 1 is 6%, Year 2 is 7%, Year 3 is 8%, Year 4 is 9%, Year 5 is 10%).
Calculate the amount of John's payment over the life of his loan. Compare these findings if he would have taken out a fix rate loan for the same period at 7.5%. Which do you think is the better deal?

Finance - Reiny, Saturday, October 23, 2010 at 1:46pm
When I answered this identical post for you yesterday, I was hoping you would make an attempt.

http://www.jiskha.com/display.cgi?id=1287786024

It is not that hard.
let the annual payment be x

then
x(1.06)^-1 + x(1.07)^-2 + ... + x(1.10)^-5 = 150000
take out x as a common factor to have

x(1.06)^-1 + 1.07^-2 + ... + 1.10^-5) = 150000

x = .... You do the button-pushing

vs

x( 1 - 1.075^-5)/.075 = 150 000
I had calculated that for you in an earlier post when you asked for the chart.

Answer this Question

Related Questions

Finance - Consider the following scenario: John buys a house for $150,000 and ...
accounting - You have just purchased a house and have obtained a 30-year, $200,...
accounting - House mortgage You have just purchased a house and have obtained a...
Finance - Say that you purchase a house for $270,000 by getting a mortgage for $...
public finance - Your annual income is $50,000. You want to take out a mortgage ...
consumer math grade 12 - jesse buys a 150 000 house and will make a 30 000 down ...
Math - The Chavara family buys a house for $225,000. They pay $50,000 down and ...
Math interest rate - Please explian how to figure out the the initial interest ...
finance - You have purchased a house and have obtained a 30-year, $ 200,000 ...
Mortgage Class - A borrower received a 30-year ARM mortgage loan for $120,000. ...

For Further Reading

First Name:
School Subject:
Answer: