A house worth $\$180,000$ was purchased using a $\$30,000$ deposit under a loan agreement that stipulated monthly repayments of $\$1500$ and interest of 4% per annum on the unpaid balance. How much was eventually paid for the house?

My solution

Using arithmetic sequence sum:

loan = $\$180,000-\$30,000 = \$150,000$

rate per month r = 0.04/12 = 1/300


A2=A1(301/300)-1500 = 150000(301/300)^2-1500(301/300)-1500

An = 150000 (301/300)^n - 1500 [1+301/300+.......+ 301/300^(n-1)]
An = 150000 (301/300)^n - 450000 [(301/300)^n -1]

let An = 0

n = log (3/2)/ log (301/300) = 121.84=122month

total payment = 1500 x 122month= 183000

total paid to the house = 183000 + 30000 = 213000

BUT answer = $\$205250$

  • $\begingroup$ Is $4\%$ a simple interest or a compound interest rate? $\endgroup$ – peterwhy Nov 11 '14 at 15:55
  • $\begingroup$ is not stated in the question. but it stated:interest of 4% per annum on the unpaid balance. \ $\endgroup$ – sekling Nov 11 '14 at 16:15
  • $\begingroup$ @sekling How long are the repayments made ? $\endgroup$ – callculus Nov 11 '14 at 16:30
  • $\begingroup$ pls help to check why answer from calculation is $213000 versus answer given is $205250......where is the mistake??? $\endgroup$ – sekling Nov 13 '14 at 17:02
  • $\begingroup$ I don't understand your calculation at all. At one point you say let An=0, later An=183000 (and the multiplication is wrong by a factor 10). You don't show the formula you are using. $\endgroup$ – Ross Millikan Nov 13 '14 at 20:46

You have not stated how you got $n$ or $d$, so it is not clear how you got $205250$. One way to solve this problem is in a spreadsheet. Make a column for month numbers, one for the balance at the start of the month, one for interest, one for payment. The interest is the starting balance times $\frac {0.04}{12}$. The payment is what it is. The balance at the start of the next month is the balance at the start of this month plus interest minus payment. Copy down and see how many months it takes to get the balance to zero. You might want to make the last month's payment be just what it takes to get to zero. Then add up the payments and you are done.

I suggest you put the interest rate in a fixed cell and use absolute reference to it. This spreadsheet will come in handy many times if you make it a bit flexible.

There should also be a formula in your book for this. It will be one of the types of annuity. You will have to read carefully to get the right formula.

  • $\begingroup$ pls help to comments whether the formula used is the correct one for annuity?? why answer is different?? really appreciate for your coaching $\endgroup$ – sekling Nov 13 '14 at 17:31

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.