A couple has determined that they can afford to make mortgage payments of $1250 per month.If they can obtain a 25 year mortgage at j₂ = 10%,how large a mortgage can they afford to get (Answer to nearest dollar)?

Question

Quizplus · Accepted Answer

Using the formula for mortgage payment, we can calculate the maximum mortgage amount:

Mortgage amount = (Monthly Payment / Mortgage Constant) x (1 - (1+ Mortgage Constant)^(-Number of Payments))

Mortgage Constant = 10% / 12 = 0.008333
Number of Payments = 25 years x 12 months/year = 300

Mortgage amount = (1250 / 0.008333) x (1 - (1.008333)^(-300)) = $139,745 (rounded to nearest dollar)

Therefore, the couple can afford a mortgage of $139,745 or less. The closest answer choice is B.

A Couple Has Determined That They Can Afford to Make