The present value of perpetuity of $100per year when the rate discount is 7% and the effect of present value of perpetuity when discount rate increases to 14%.

Question

You plan to purchase a $200,000 house using either a 30-year mortgage obtained from your local savings bank with a rate of 7.25 percent, or a 15-year mortgage with a rate of 6.50 percent. You will make a down payment of 20 percent of the purchase price. Calculate the amount of interest and, separately, principal paid on each mortgage. What is the difference in interest paid? Calculate your monthly payments on the two mortgages. What is the difference in the monthly payment on the two mortgages?

Answer 1

Question

Chapter 4, Problem 27P

Summary Introduction

To determine: The present value of perpetuity of $100per year when the rate discount is 7% and the effect of present value of perpetuity when discount rate increases to 14%.

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