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Unformatted text preview: = $ 765. Problem #2: You are planning to buy a new condominium in Toronto. The Condo is worth $220,000; you will put a 25% down payment and obtain a 25year fixed rate mortgage at 6.25% (APR semiannually compounded) for the rest. Assuming that monthly payments begin in one month, how much interest will you pay (in dollars) over the life of the loan? A) $128,259.14 B) $159,105.03 C) $110,358.81 D) $143,517.24 Solution: 1 . Find Semiannual rate: i s = 6.25% > .0625/2 = .03125 2. Find EAR: EAR = (1.03125) 2 – 1 = .0634766 3. Find the monthly rate: i m = (1+ 0.0634766) 1/121 = 0.005142. 4. Find Number of months in mortgage: n = 25yrs x 12mths/yr = 300 months 5. Find the monthly payment with a PV of $165,000 ( $220,000 x 75% ) Using your calculator: PV= 165,000 , n=300, i=0.5142%, FV=0, PMT=? Answer= $1,080.35 6. The total interest paid is given by: Interest paid = Total payments – Principal = $1080.35 x 300 – $165,000 = 159,105.03...
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 Summer '09
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