Explanation Given: Option-A P = $ 70 , 000 , r = 8.5 % , t = 30 years, n = 12 Option-B P = $ 70 , 000 , r = 8 % , t = 20 years, n = 12 Formula used: The formula used for computing the PMT is as follows: P M T = P ( r n ) [ 1 − ( 1 + r n ) − n t ] Where, PMT denotes monthly payment, r represents rate of interest number of times compounding is done in a year and t represents number of years. Calculation: Option-A Compute the monthly payment for mortgage as shown below: P M T = P ( r n ) [ 1 − ( 1 + r n ) − n t ] = $ 70 , 000 ( 0.085 12 ) [ 1 − ( 1 + 0.085 12 ) − 12 ( 30 ) ] = $ 70 , 000 × 0.0070 [ 1 − ( 1 + 0.085 12 ) − 12 ( 30 ) ] = $ 495.8 [ 1 − ( 1.0071 ) − 360 ] = $ 495.8 [ 1 − 0.0783 ] = $ 495.8 0.921 = $ 538

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ISBN: 8220100802720

Author: Blitzer

Publisher: PEARSON

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Chapter 8, Problem 65RE

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To calculate: The option which is more economical and amount of interest saved and one advantage and disadvantage of mortgage.

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Chapter 8, Problem 64RE

Chapter 8, Problem 66RE

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The option which is more economical and amount of interest saved and one advantage and disadvantage of mortgage.

Solution Summary: The author explains that option-B is more economical and interest saved is 53,040. Advantage of mortgage is that it makes easy to have home ownership and is a cost effective way of borrowing money.

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To calculate: The option which is more economical and amount of interest saved and one advantage and disadvantage of mortgage.

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