Horace and Myrtle want to buy a house. Their banker offered them a fully amortizing $95,000 loan at a 12% annual rate for 20 years. What will their monthly payment be if they make equal monthly installments over the next 20 years?

Question

Quizplus · Accepted Answer

The correct answer is A.The monthly payment for a fully amortizing loan can be calculated using the following formula:M = P * (r * (1 + r)^n) / ((1 + r)^n - 1)where:M = monthly paymentP = principal amount of the loanr = monthly interest rate (annual rate / 12)n = number of months of the loanIn this case, we have:P = $95,000r = 12% / 12 = 0.01n = 20 * 12 = 240Plugging these values into the formula, we get:M = 95000 * (0.01 * (1 + 0.01)^240) / ((1 + 0.01)^240 - 1)= 95000 * (0.01 * 2.71456) / (2.71456 - 1)= 95000 * 0.0271456 / 1.71456= $1,046.00Therefore, the monthly payment for the loan is $1,046.

Horace and Myrtle Want to Buy a House