The Turners have purchased a house for $150,000. They made an initial down payment of $30,000 and secured a mortgage with interest charged at the rate of 9% per year on the unpaid balance. What monthly payments will the Turners be required to make?

a. Future Value with compound interest

b. Present Value with compound interest

c. Future Value of an Annuitv

d. Present Value of an Annuity

e. Sinking Fund

f. Amortizatiorn

C

Explanation:

This value that gets bigger will be annually

f. Amortizatiorn

Explanation:

Loan amortization refers to the division of a loan into a number of fixed payments to made over a period of time.

The formula for calculating loan amortization is given as follows:

P = {A * [r (1 + r) ^n]} : {[ (1+r) ^n]-1} ... (1)

Using the information in the question, the monthly payment Turners will be required to make can be calculated as follows:

Where,

P = Monthly required payment = ?

A = Loan balance = Loan amount - Initial down payment

= $150,000 - $30,000 = $120,000

r = interest rate = 9% per year = 0.09 pear year

= (0.09 : 12) per month = 0.0075 per year

n = number of payment period = 5 years = (5 * 12) months = 60 months

Note that number of payment period is assumed to ease the calculation as it not given in the question.

Substituting all the figures into equation, we will have:

P = {120,000 * [0.0075 (1 + 0.0075) ^60]} : {[ (1+0.0075) ^60] - 1}

= (120,000 * [0.0075 (1.0075) ^60]} : {[ (1.0075) ^60] - 1}

= (120,000 * [0.0075 * 1.56568102694157]} : {1.56568102694157 - 1}

= (120,000 * 0.0117426077020618} : {0.56568102694157}

= 1,409.11292424742 : 0.56568102694157

= $2,491.00

Therefore, Turners will be required to make monthly payment of $2,491.00 per month for 5 years assuming the loan is for five years.