Mr. Bill S. Preston, Esq., purchased a new house for $ 160,000. He paid $15,000 down and agreed to pay the rest over the next 25 years in 25 equal end-of-year payments plus 13.1 percent compound interest on the unpaid balance. What will these equal payments be? The equal payments will be

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2.45K viewsJanuary 22, 2017

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Darshita 6.14K January 22, 2017 0 Comments

Mr. Bill S. Preston, Esq., purchased a new house for $ 160,000. He paid $15,000 down and agreed to pay the rest over the next 25 years in 25 equal end-of-year payments plus 13.1 percent compound interest on the unpaid balance. What will these equal payments be?

The equal payments will be

1 Answer

score 0 · Answer 1 · 2017-01-22T07:22:22+00:00

Answer:

yearly payment is = $ 18,539.13

Working notes for the above answer is as under

PMT formula is

PVoa = PMT [(1 – (1 / (1 + i)n)) / i]

Here:

PVoa = Present Value of an Ordinary Annuity

PMT = Amount of each payment

i = Discount Rate Per Period

n = Number of Periods

To Show this in Excel, we would use the Excel Formula

Now we put the figures in to the formula as follow

Mr. Bill S. Preston, Esq.,

purchased a new house for $160,000.

He paid $15,000 down and agreed to pay the rest over the next 25 years in 25 equal end-of-year payments

So loan amount is

=160,000-25000

=$ 135,000

PV
Year
Rate

60000
25
13.1%

135,000 = PMT [(1 – (1 / (1 + 13.1%)25)) / i]

Solving this equation we will get

Pmt =$ 18,539.13

Pmt( interest_rate, number_payments, PV, FV, Type )

For instance, on this one

Loan is $135,000 – interest is 13.1%, We will not use FV here as there is not a future value for this loan, 25 installments and the type will be 0 as the payment is due at the end of the year (would use 1 if due at the beginning of the period). The formula in excel to use would be

Pmt(13.1%, 25, 135000, 0, 0)

Pmt = $18,539.13

1 Answer

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