3. A couple save for a deposit and then take out a mortgage to buy a house as follows:
(a) They pay equal monthly amounts into a savings account which pays interest of 1.5% p.a. compounded monthly. What is the monthly amount they must deposit in order to have e 40,000 at the end of 10 years?
(b) After ten years they buy a house for e200,000 using the e40,000 saved as a deposit. They take out a 25 year mortgage at the fixed rate of 4.5% p.a. compounded monthly. Compute the amount of the monthly repayment of the mortgage?
(c) How much does the bank earn on the mortgage?
Hi Kcc,
3. A couple save for a deposit and then take out a mortgage to buy a house as follows:
(a) They pay equal monthly amounts into a savings account which pays interest of 1.5% p.a. compounded monthly. What is the monthly amount they must deposit in order to have e 40,000 at the end of 10 years?
This is the furture value of an ordinary annuity problem.
i=0.015/12 C=unknown n=120 FV=40000
You can work this out yourself. :)
(b) After ten years they buy a house for e200,000 using the e40,000 saved as a deposit. They take out a 25 year mortgage at the fixed rate of 4.5% p.a. compounded monthly. Compute the amount of the monthly repayment of the mortgage?
PV=160000 i=0.045/12 n=25*12 C= ?
Use PV of an ordinary anuity to work this bit out.
(c) How much does the bank earn on the mortgage?
you can do this bit I expect. :)
(a) - They must deposit $309.17 every month for 10 years to have $40,000. Work this out and see if you can get the same amount.
(b) - Their monthly payment would be $889.33. The Bank should earn a total of $106,800.10 in interest over 25 years. Also, try to verify these numbers on your own and see if you can get the same numbers. If you have any problems, let us know.