Answer :
Answer:
f. Amortizatiorn
Explanation:
Loan amortization refers to the division of a loan into a number of fixed payments to made over a period of time.
The formula for calculating loan amortization is given as follows:
P = {A × [r(1 + r)^n]} ÷ {[(1+r)^n]-1} .................................... (1)
Using the information in the question, the monthly payment Turners will be required to make can be calculated as follows:
Where,
P = Monthly required payment = ?
A = Loan balance = Loan amount - Initial down payment
= $150,000 - $30,000 = $120,000
r = interest rate = 9% per year = 0.09 pear year
= (0.09 ÷ 12) per month = 0.0075 per year
n = number of payment period = 5 years = (5 × 12) months = 60 months
Note that number of payment period is assumed to ease the calculation as it not given in the question.
Substituting all the figures into equation, we will have:
P = {120,000 × [0.0075(1 + 0.0075)^60]} ÷ {[(1+0.0075)^60] - 1}
= (120,000 × [0.0075(1.0075)^60]} ÷ {[(1.0075)^60] - 1}
= (120,000 × [0.0075 × 1.56568102694157]} ÷ {1.56568102694157 - 1}
= (120,000 × 0.0117426077020618} ÷ {0.56568102694157}
= 1,409.11292424742 ÷ 0.56568102694157
= $2,491.00
Therefore, Turners will be required to make monthly payment of $2,491.00 per month for 5 years assuming the loan is for five years.