You wish to buy a house and you can afford to make a down payment of $50,000. Your monthly mortgage payment cannot exceed $2,000. If 30-year loans are available at 7.5% annual interest rate which is compounded monthly, the highest price that you may consider is most nearly:
Solution:
n = 360 months interest = 7.5%-annual ÷ 12-months/year = 0.625% per month
Apply the equation:
i (1+i)n / (1+i)n - 1
This yields (A/P, 0.00625, 360) = 0.00699
Apply the following equation to find the highest price to consider:
P x 0.00699 = (Highest $ - $50,000) x 0.00699 ≤ $2,000
Highest $ ≤ ($2,000/0.00699) + $50,000 = $336,123