Calculate annual interest rate which is compounded monthly, Civil Engineering

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You wish to buy a house and you can afford to make a down payment of $50,000. Your monthly mortgage payment cannot exceed $2,000. If 30-year loans are available at 7.5% annual interest rate which is compounded monthly, the highest price that you may consider is most nearly:

Solution:

n = 360 months interest = 7.5%-annual ÷ 12-months/year = 0.625% per month

Apply the equation:      

i (1+i)n / (1+i)n - 1

This yields (A/P, 0.00625, 360) = 0.00699 

Apply the following equation to find the highest price to consider:

P x 0.00699 = (Highest $  -  $50,000) x 0.00699   ≤   $2,000

Highest $ ≤   ($2,000/0.00699) + $50,000 = $336,123


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