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Suppose you need to finance $95,000 for the purchase of a home, and you’re deciding between...

Suppose you need to finance $95,000 for the purchase of a home, and you’re deciding between a conventional 30-year mortgage loan at 5 percent and an ARM at an initial rate of 3 percent, an annual interest rate cap of 1 percentage point, and a lifetime cap of 4 percentage points. Collapse question part (a) Calculate the mortgage payment for the conventional loan (30-year at 5 percent). (Round answer to 0 decimal places, e.g. 5,275.)

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Answer #1

a]

Monthly loan payment is calculated using PMT function in Excel :

rate = 5% / 12   (converting annual rate into monthly rate)

nper = 30*12 (30 year loan with 12 monthly payments each year)

pv = 95000 (loan amount)

PMT is calculated to be $510

X for =PMT(5%/12,30*12,95000) B C D E F A ($510)

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