Ask Question
29 January, 08:51

Tom Burke buys a home in Virginia for $139,000. He puts down 30% and obtains a mortgage for 25 years at 12%. The portion of the first payment that covers interest is:

+5
Answers (1)
  1. 29 January, 10:50
    0
    You didn't specify the periodic payment in your question. I will solve it assuming that payment is made monthly.

    Amount owing by Tom = 70% of 139,000 = 0.7 x 139,000 = $97,300

    Present Value of an annuity is given by PV = P (1 - (1 + r) ^-n) / r; where P is the periodic (monthly) payment, r is the interest rate = 12%/12 = 1% = 0.01, n is the number of periods = 25 x 12 = 300 months.

    97,300 = P (1 - (1 + 0.01) ^-300) / 0.01

    P = 973 / (1 - (1.01) ^-300) = 973 / (1 - 0.050534) = 1,024.79

    Thus Tom pays $1,024.79 per month.

    Interest due for the first month = 0.01 x 97,300 = $973

    Therefore, the portion of the first payment that covers the interest is $973
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Tom Burke buys a home in Virginia for $139,000. He puts down 30% and obtains a mortgage for 25 years at 12%. The portion of the first ...” in 📙 Mathematics if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers