Question

Oppenheimer Bank is offering a 30-year mortgage with an EAR of 5.375%. If you plan to borrow $180,000, what will your monthly payment be? Your monthly payment will be $ 1. (Round to the nearest cent.)!

Answer 1

(1 + Effective annual rate) = (1 + Monthly interest rate)^12
(1 + 0.05375) = (1 + Monthly interest rate)^12
1 + Monthly interest rate = 1.0043725
Monthly interest rate = 0.0043725 or 0.43725%

Amount borrowed = $180,000
Period = 30 years or 360 months

Let monthly payment be $x

$180,000 = $x/1.0043725 + $x/1.0043725^2 + … + $x/1.0043725^359 + $x/1.0043725^360
$180,000 = $x * (1 - (1/1.0043725)^360) / 0.0043725
$180,000 = $x * 181.153545
$x = $993.63

Monthly payment = $993.63

Your monthly payment will be $993.63