Question

P = L [(r/12) / (1 - (1 + r/12) ^ (-t)]

P = monthly payment
L = loan amount
r = annual rate of interest, expressed as a decimal
t= length of loan, in months

On July 8, 2003, average interest rates were:
(a) 5.52% on 30-year mortgages
(b) 4.85% on 15-year mortgages
1. For each rate, calculate the monthly payment for a loan of $200,000.
2. Then compute the total amount paid over the term of each loan.
3. Calculate the interest paid on each loan.

Answer 1

Would the numbers towards the end (1-3) be the steps to get my answer or are they separate problems for the given (a) and (b)?

Answer 2

\[P=L((r/12)/(1-(1+r/12)^-t)\]
Rewrote equation for others to see easier

Answer 3

\[P =L \left[ \frac{ \frac{ r }{ 12 } }{ 1-(1+\frac{ r }{ 12 })^{-t} } \right]\]

Answer 4

Is that better? I also have the labels for the variables in the question I opened :) Also, would the numbers towards the end (1-3) be the steps to get my answer or are they separate problems for the given (a) and (b)?

Answer 5

Because of (a) and (b), you would have to do for both rates, unless it says use the 15 year or 30 year rate

Answer 6

1 to 3 are three separate questions.
For (1), plug the values into the formula and calculate the monthly payment P.
For (2), Multiply P calculated above by 30 * 12 (for 30 year mortgage) or P * 15 * 12 (for 15 year mortgage) to find the total amount paid.
For (3), Subtract the loan amount of $200,000 from the total amount paid calculated in step 2 to find the total interest paid.

Answer 7

@aum It makes much more sense now! Thank you very much! :D

Answer 8

You are welcome.