Question

The monthly mortgage payment in dollars, P, for a house is a function of three variables. P=f(A,r,N) where A is the amount borrowed in dollars, r is the interest rate, and N is the number of years before the mortgage is paid off.

∂P/∂r=61.27 for f(86000,13,20)

What is the financial significance of the number 61.27?

(Options below)

Answer 1

- This means that the rate of change of the monthly payment with respect to the number of years before the mortgage is paid off is $61.27; i.e., the monthly payment will go down by approximately $61.27 for every one year increase in the number of years before the mortgage is paid off for the $86000 borrowed at 13% interest rate.
- This means that the rate of change of the monthly payment with respect to the interest rate is $61.27; i.e., the monthly payment will go up by approximately $61.27 for every one percentage point increase in the interest rate for the $86000 borrowed under a 20-year mortgage.
- This means that the rate of change of the monthly payment with respect to the interest rate is $61.27; i.e., the monthly payment will go down by approximately $61.27 for every one percentage point increase in the interest rate for the $86000 borrowed under a 20-year mortgage.
- This means that the rate of change of the monthly payment with respect to the amount borrowed is $61.27; i.e., the monthly payment will go up by approximately $61.27 for every $1,000 borrowed amount increase for the $86000 borrowed under a 20-year mortgage in the interest rate .
- This means that the rate of change of the monthly payment with respect to the number of years before the mortgage is paid off is $61.27; i.e., the monthly payment will go up by approximately $61.27 for every one year increase in the number of years before the mortgage is paid off for the $86000 borrowed at 13% interest rate.