Math

Suppose the Bainters purchase the $150,000.00 home with a 20%
down payment, a 30-year mortgage, and an interest rate of 4.2%. Annual property taxes are $1920.00. Home insurance is $750.00 per year, which is to be placed into an escrow account.

What is the total first-year cost when purchasing the home?

A) 39,711.84

B) 9,711.84

C) 37,041.84

D) 7,041.84

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  1. mortgage = .8(150000) = 120,000
    i = .042/12 = .0035
    n = 12(30) = 360
    monthly payment = ?
    pay(1 - 1.0035^-360)/.0035 = 120000
    I got payment = $586.82

    One of the answers is obtained by 12(586.82) + 750 + 1920
    = $9,711.84

    However, in actuarial mathematics, this is not an acceptable operation.
    You cannot just add up the 12 payments to get an annual cost, since the
    payments are at different points on the time graph.

    I don't even know how the other answers are obtainable.

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    Reiny

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