Question

Sofia has a 5.2% fixed rate 30-year mortgage in the amount of $350,000. The total cost of principal and interest is about $691,880. Which of the following is closest to Sofia’s monthly payment?

$972

$1,167

$1,922

$2,306

Answer 1

@ankit042

Answer 2

you are allowed to use excel?

Answer 3

yes i am just not good at using it .

Answer 4

in excel there is a formula to calculate PMT

Answer 5

can you explain all the variables in the question
We need Principal value, Future value, interest rate and number of periods

Answer 6

explain them like what they are or tell you which numbers each one is?

Answer 7

which number is which one

Answer 8

principal value -
future value - $691,880
interest rate - 5.2%
number of periods - 30 year?

Answer 9

not sure which the principal value is, and i hope those are right im not sure.

Answer 10

Sorry I meant present value which is $350,000
You have identified the variables correctly congrats!
just one thing to take care as PMT are monthly so we will change the interest rate from yearly to monthly 5.2/12
and number of periods will also change 30*12

Answer 11

yay!

Answer 12

ok so 5.2/12 would be 0.43 and 30*12 is 360

Answer 13

Now you just have to put all these values in the PMT formual in excel and you will get your answer!

Answer 14

i need help with that lol

Answer 15

can you give more detail where exactly you need help with excel

Answer 16

i have only used excel twice.

Answer 17

you can use it for the third time I guess :)

Answer 18

what is the website again?

Answer 19

you can use this http://spreadsheets.about.com/od/excelfunctions/qt/20071020.htm

Answer 20

no but what is the link to excel

Answer 21

Excel is a software from Microsoft it must be installed on your system

Answer 22

Oh i am using my phone i cannot install it i thought you can just go to the website. can you please help i really need to finish this

Answer 23

Please....

Answer 24

Ok I am not getting any of the options let me recheck

Answer 25

Ok thank you

Answer 26

I am getting 2,722.93 not sure what I have done wrong

Answer 27

if this is for a finance class i would recommend getting a finance calculator like a TI-BA
that will allow you to do these problems fairly easily

im getting monthly payment of 1922
also they gave you the total cost ... you could just divide that by 360 to get monthly payment :)

Answer 28

@dumbcow can you walk me through ...is there no compounding involved here?

Answer 29

yes there is compounding monthly i assume
here is what you would input into excel
"PMT(.052/12,360,350000)"

Answer 30

ohh I actually added FV as well 691880 PMT(0.052/12,30*12,350000,691880)

Answer 31

oh i see, yeah that will give different numbers

Answer 32

i posted another can you guys help

Answer 33

But then what should be used in general any ideas?

Answer 34

hmm in general , if you are borrowing use PV ... if you are the lender or accumulating int use FV

Answer 35

If I use 1922 as PMT I am getting FV as 3,319,967.52

Answer 36

right assuming a PV of 350000 but for the lender they dont have the "350000" right away, they are starting at 0
the FV is what the lender has after 30 yr if they invest the monthly payment and get same compound int they are charging
it is not same thing as total cost to borrower which is just the sum of all payments

Answer 37

if PV =0 , FV = 1,660,000
so banks make a nice profit over 30 years...theres a reason banks are so willing to hand out mortgages :)

Answer 38

@dumbcow I think I understood this so
FV in the PMT formaula stands for I Quote "FV (optional) is the desired value (future value) to be reached at the end of the periodic payments."
Now we want to make the future value of our loan to be zero hence we put FV as 0.
What do you think?

Answer 39

correct, since we are looking at borrowers point of view...the PV is what you owe or the initial Balance
the goal is to get balance to 0 so FV of loan must be 0

Answer 40

note in Excel "0" is default setting for FV

Answer 41

Yeah I know