Ms. Colonial has just taken out a $150,000 mortgage at an interest rate of 6% per year. If the mortgage calls for equal monthly payments for twenty years, what is the amount of each payment? (Assume monthly compounding or discounting.)
A) $1254.70
B) $1625.00
C) $1263.06
D) None of the above are true

Question

Quizplus · Accepted Answer

The correct answer is A. The amount of each payment is $1254.70. This can be calculated using the formula for the monthly payment of a mortgage:PMT = (P * r) / (1 - (1 + r)^(-n))where:PMT is the monthly paymentP is the principal amount of the mortgager is the monthly interest raten is the number of months in the mortgage termIn this case, the principal amount of the mortgage is $150,000, the monthly interest rate is 6% / 12 = 0.5%, and the number of months in the mortgage term is 20 * 12 = 240. Plugging these values into the formula, we get:PMT = (150000 * 0.005) / (1 - (1 + 0.005)^(-240))PMT = 1254.70

Ms Colonial Has Just Taken Out a $150,000 Mortgage at an Interest