Question

A $120,000.00 mortgage is amortized over 25 years. If interest on the mortgage is 8.5% compounded semi-annually, calculate the size of monthly payments made at the end of each month. Select one: O a. $1,908.88 b. $477.22 c. $747.44 d. $954.44 e. $594.22

Answer 1

Effective monthly rate = (1 + 0.085/2)^(1/6) - 1 = 0.006961062123

n = 25 * 12 = 300

We need to find PMT such that:

$PV = \frac{PMT}{r} * \left [ 1 - \frac{1}{(1+r)^{n}} \right ]$

$120,000 = \frac{PMT}{0.006961062123} * \left [ 1 - \frac{1}{(1+0.006961062123)^{300}} \right ]$

$120,000 = \frac{PMT}{0.006961062123} *0.8752051057$

$120,000 = PMT*125.7286733311$

$PMT= \frac{120,000}{125.7286733311}= 954.436222229$

Option d is correct.

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