If a borrower can afford to make monthly principal and interest payments of $1,000 and the lender will make a 30-year loan at 8-1/2%, how large a loan (rounded to the nearest $100) can this buyer afford? (BE SURE TO USE THE AMORTIZATION TABLE.)
30 yr loan at 8-1/2%=7.69
To answer this question, you would need to calculate the loan amount that the buyer can afford based on their ability to make monthly principal and interest payments of $1,000 and the terms of the loan.
Step 1: Determine the monthly interest rate:
The annual interest rate of 8-1/2% needs to be converted to a monthly rate. Divide the annual interest rate by 12 to get the monthly interest rate.
Monthly interest rate = (8.5% / 100) / 12 = 0.0070833
Step 2: Determine the number of months in the loan term:
Since it is mentioned that the loan term is 30 years, multiply 30 by 12 to get the total number of months.
Number of months = 30 years * 12 = 360 months
Step 3: Use the amortization table to calculate the loan amount:
The amortization table provides a breakdown of each monthly payment over the loan term. By using this table, you can determine the loan amount that corresponds to a monthly payment of $1,000.
An amortization table can be found online or by using financial analysis software. You would need to input the loan term, interest rate, and monthly payment to generate the table.
In this case, with a monthly payment of $1,000, you would look for the closest value to $1,000 in the amortization table under the column for the calculated monthly payment. The corresponding loan amount would be the answer.
Please note that without the specific amortization table, it is not possible to provide the exact loan amount that the buyer can afford. However, by following the steps mentioned above and referring to the amortization table, you can calculate the loan amount that rounds to the nearest $100 that the buyer can afford.