A couple buys a house and takes out a $250,000 mortgage.They plan to make payments twice a month,with the first payment one half month from now.If they choose a 25 year amortization period and j₂ = 4.2%,what is the size of their bi-monthly monthly payments?

Question

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First, we need to calculate the monthly interest rate: j = (1 + j₂)^(1/12) - 1 j = (1 + 0.042/2)^(1/12) - 1 j = 0.0034 Then, we need to calculate the total number of payments: n = 25 x 12 x 2 n = 600 Finally, we can use the formula for the bi-monthly payment: P = (j x A) / (1 - (1 + j)^(-n)) P = (0.0034 x 250000) / (1 - (1 + 0.0034)^(-600)) P = 670.57 Therefore, the size of their bi-monthly payments is $670.57. Choice A is the correct answer.

A Couple Buys a House and Takes Out a $250,000