If a narrower can afford to make monthly principal and interest payment of $1,000 and the lender will make a 30 year loan at 8-1/2%=7.69 using amortization table. how large a loan(rounded to the nearest $100) can this buyer afford?
What is "net?" What is a narrower?
To determine the maximum loan amount that the buyer can afford, we need to calculate the monthly payment based on the given interest rate and loan term.
Step 1: Calculate the Monthly Interest Rate
The interest rate of 8-1/2 percent needs to be converted to a decimal form. Divide it by 100:
8.5 / 100 = 0.085
Step 2: Calculate the Monthly Interest Rate
Since the loan is for 30 years, multiply the number of years by 12 to calculate the number of months:
30 * 12 = 360 months
Step 3: Calculate the Monthly Payment
We can use the monthly payment formula for an amortization table to find the loan amount. The formula is:
M = P * (r(1+r)^n) / ((1+r)^n - 1)
Where:
M = Monthly Payment
P = Loan Amount
r = Monthly Interest Rate
n = Number of Months
In this case, we know the monthly payment (M = $1,000), the monthly interest rate (r = 0.085), and the number of months (n = 360). We need to solve for the loan amount (P).
Let's plug in the values and solve for P:
$1,000 = P * (0.085 * (1 + 0.085)^360) / ((1 + 0.085)^360 - 1)
Using a financial calculator or spreadsheet software, we can solve for P. The loan amount (rounded to the nearest $100) that the buyer can afford is the value of P.