
Pv: annuity problem
You are able to pay $1200 per month in mortgage repayments. You can get a 30 year loan with interest of 8.5% compounded monthly but you must pay 5% of the cost of the house as an initial payment. Assuming that you have saved enough for the initial payment, what is the highest price you can afford to pay for a house?
The 5% part is confusing me a bit.
PV of the loan = $165064.37
Do i simply multiply this by 1.05?
Thanks in advance,

Re: Pv: annuity problem
From reading the question, it looks like you're approaching the problem correctly.
Since we're paying 5% of the loan immediately as a down payment we have 95% of the loan left, so:
$\displaystyle 0.95L=1200a_{\overline{360}\frac{0.085}{12}}=1560 64.37$
Then divide by 0.95 to find L. By the way, you transposed the 5 and 6 in your answer.

Re: Pv: annuity problem
Thanks for that mate.
Appreciate it