Doubt in Quantitative Methods

duelraj
Posts: 1
Joined: Mon May 15, 2017 7:09 am

Doubt in Quantitative Methods

Postby duelraj » Wed May 31, 2017 11:31 am

A consumer is shopping for a home. His budget will support a monthly payment of $1300 on a 30- year mortgage with an annual interest rate of 7.2 percent. If the consumer puts a 10 percent down payment on the home, the most he can pay for his new home is closest to:
A: $191518
B: $210840
C:212800


Could anyone explain how to go about this question as well as the logic behind it?

Thank you.

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edupristine
Finance Junkie
Posts: 873
Joined: Wed Apr 09, 2014 6:28 am

Re: Doubt in Quantitative Methods

Postby edupristine » Thu Jun 01, 2017 4:46 am

Hi Raj,

Please see the explanation and understanding behind the question:-

Let's calculate the PV, (PMT = -1300, I/Y = .6, N = 360, FV = 0) which is 191,518. However, to reach the correct answer you need to divide this by .90(PV/(1-.10%)) and you will get the correct option as C.

Formula:- Mortgage + 10% × house value = house value.

Thanks!


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