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Finances- PreCalc

  1. Aug 23, 2010 #1
    1. The problem statement, all variables and given/known data

    Rebecca and Tom Payton have decided to buy a home that costs $200,000. The Paytons can put down 20% of the home's price. They have applied for a 15-year, 9% FRM to finance the balance. They Paytons have a combined gross annual income of $70,000.

    How much will the Paytons pay to satisfy their mortgage loan, if they make all the payments on time for the amount being financed?



    3. The attempt at a solution
    I don't know where to start.
    I got 200,000(.20) = 40000
    Then I don't know where to go after that.
     
    Last edited: Aug 24, 2010
  2. jcsd
  3. Aug 28, 2010 #2
    What does FRM stand for?
     
  4. Aug 28, 2010 #3
    FRM in this context stands for "Fixed Rate Mortgage" (so the rate doesn't change over the life of the loan).
     
  5. Aug 28, 2010 #4

    eumyang

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    Homework Helper

    Wouldn't the Present Value of an Annuity formula work for this problem?
    [tex]PV = R\frac{1 - (1 + i)^{-n}}{i}[/tex]

    PV = the amount of the loan.
    R = the amount of a payment.
    i = the interest rate per period.
    n = the number of equal payments.

    The OP didn't state how often the payments need to be made. I'll assume monthly. Plug in 160,000 for PV (200,000 minus 20% down), .0075 for i (interest rate .09 divided by 12 months in a year), and 180 for n (15 years times 12 monthly payments in a year), and solve for R.


    69
     
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