Find the monthly house payment necessary to amortize the following loan.
-In order to purchase a home, a family borrows $70,000 at 12% for 15 years. What is the monthly payment?
A) $902.99
B) $700.00
C) $46.67
D) $840.12

Question

Quizplus · Accepted Answer

To calculate the monthly payment necessary for this loan, we can use the formula for calculating the monthly payment on an amortized loan:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:
M = monthly payment
P = principal amount (the amount borrowed)
i = interest rate per month (annual rate divided by 12)
n = total number of payments (15 years x 12 months per year = 180 payments)

Plugging in the values for this loan, we get:

M = $70,000 [ 0.01(1 + 0.01)^180 ] / [ (1 + 0.01)^180 – 1]
M = $840.12

Therefore, the monthly house payment necessary to amortize this loan is $840.12, which is answer choice D.

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