Use the table to answer the question. $\text { cellpadding }=" 0 \text { " cellspacing }=" 0 \text { " align }=\text { "center" width=" } 99 \% \text { " border="1" }$

$\text { Monthly Cost to Finance } \$ 1,000$

$\begin{array}{llccc}
&{\text { Number of Years Financed }} \
\text { Rate of } & 5 \text { Years } & 10 \text { Years } & \text { 20 Years } & 30 \text { Years } \
\text { Interest } & \mathrm{N}=60 & \mathrm{~N}=120 & \mathrm{~N}=240 & \mathrm{~N}=360 \
6.0 \% & 19.33 & 11.10 & 7.16 & 6.00 \
7.0 \% & 19.80 & 11.61 & 7.75 & 6.65 \
8.0 \% & 20.28 & 12.13 & 8.36 & 7.34 \
9.0 \% & 20.76 & 12.67 & 9.00 & 8.05 \
10.0 \% & 21.25 & 13.22 & 9.65 & 8.78 \
11.0 \% & 21.74 & 13.77 & 10.32 & 9.52 \
12.0 \% & 22.24 & 14.35 & 11.01 & 10.29
\end{array}$ Find the amount of the down payment (rounded to the nearest hundred dollars) necessary for the buyer to afford the monthly payments for a $130,000 home with a 30-year 8% loan, if his monthly salary is $2,600 with monthly bill payments of $500.
A) $103,000
B) $7,300
C) $800
D) $27,000
E) $9,500

Question

Use the table to answer the question. $\text { cellpadding }=" 0 \text { " cellspacing }=" 0 \text { " align }=\text { "center" width=" } 99 \% \text { " border="1"> }$

$\text { Monthly Cost to Finance } \$ 1,000$

$\begin{array}{llccc} 
&{\text { Number of Years Financed }} \
\text { Rate of } & 5 \text { Years } & 10 \text { Years } & \text { 20 Years } & 30 \text { Years } \
\text { Interest } & \mathrm{N}=60 & \mathrm{~N}=120 & \mathrm{~N}=240 & \mathrm{~N}=360 \
6.0 \% & 19.33 & 11.10 & 7.16 & 6.00 \
7.0 \% & 19.80 & 11.61 & 7.75 & 6.65 \
8.0 \% & 20.28 & 12.13 & 8.36 & 7.34 \
9.0 \% & 20.76 & 12.67 & 9.00 & 8.05 \
10.0 \% & 21.25 & 13.22 & 9.65 & 8.78 \
11.0 \% & 21.74 & 13.77 & 10.32 & 9.52 \
12.0 \% & 22.24 & 14.35 & 11.01 & 10.29
\end{array}$ Find the amount of the down payment (rounded to the nearest hundred dollars) necessary for the buyer to afford the monthly payments for a $130,000 home with a 30-year 8% loan, if his monthly salary is $2,600 with monthly bill payments of $500.
A) $103,000
B) $7,300
C) $800
D) $27,000
E) $9,500

Quizplus · Accepted Answer

The buyer can afford a monthly payment of $2,600 - $500 = $2,100 for the home loan. At an 8% interest rate for 30 years, the monthly payment per $1,000 financed is $7.34. To find out how much can be financed, divide the affordable monthly payment by the monthly cost per $1,000: $2,100 / $7.34 ≈ $286,100 (rounded to the nearest hundred). Since the home costs $130,000, the down payment needed is $130,000 - $286,100 = -$156,100. This calculation error indicates a misunderstanding in the calculation process. The correct approach is to determine how much of the home price the buyer can cover with the affordable monthly payment, not to calculate financing beyond the home's price. Let's correct the approach:The correct calculation should determine the maximum loan amount the buyer can afford and then subtract this from the home's price to find the down payment. With a monthly payment of $2,100 and a rate of $7.34 per $1,000 financed, the loan amount the buyer can afford is calculated by multiplying the monthly payment by $1,000 and dividing by the monthly cost per $1,000 financed: ($2,100 / $7.34) * $1,000 = $286,100. This exceeds the home's price, indicating the buyer can afford the home without the full loan amount. However, the calculation provided was incorrect in its conclusion.Given the constraints and the error in the initial explanation, the correct step is to calculate the affordable monthly payment for the home loan, then use the table to determine how much of the home price this payment can cover at the specified interest rate and term, and finally calculate the necessary down payment. However, without the correct calculation process directly tied to the options provided, the initial explanation led to confusion.Revisiting the problem with the correct approach: The monthly payment the buyer can afford for the mortgage is $2,100 (after subtracting monthly bills from the monthly salary). Using the table, for an 8% loan over 30 years, the monthly payment per $1,000 is $7.34. The maximum loan amount the buyer can afford is based on how much home the buyer can afford with the monthly payment available for the mortgage, not directly calculating a down payment from the table values.The correct calculation involves determining the loan amount the buyer can afford and then calculating the down payment based on the difference between the home price and the affordable loan amount. However, the initial explanation and calculation provided were incorrect, leading to confusion in the answer selection process.