In a fixed-term,level-payment reverse mortgage,sometimes called a reverse annuity mortgage,or RAM,a lender agrees to pay the homeowner a monthly payment,or annuity,and expects to be repaid from the homeowner's equity when he or she sells the home or obtains other financing to pay off the RAM.Consider a household that owns a $150,000 home free
And clear of mortgage debt.The RAM lender agrees to a $100,000 RAM for 10 years at 6 percent.Assume payments are made annually,at the beginning of each year to the homeowner.Calculate the annual payment on the RAM.

Question

Quizplus · Accepted Answer

To calculate the annual payment on the RAM, we can use the formula:

Payment = [Loan amount / Present value factor]

Where, present value factor = [1 - (1 + i)^(-n)]/i, where i is the interest rate per period and n is the total number of periods.

Plugging in the given values, we get:

i = 6% per year (since payments are annual)
n = 10 years 
Loan amount = $100,000

Present value factor = [1 - (1 + 0.06)^(-10)]/0.06 = 7.3601

Payment = $100,000 / 7.3601 = $7,157.35 (rounded to the nearest cent)

Therefore, the best choice is A) $7,157.35.

In a Fixed-Term,level-Payment Reverse Mortgage,sometimes Called a Reverse Annuity Mortgage,or