4. You have decided to buy your first house and you have been approved for a $300,000
home mortgage. The posted rate is 5.60% (APR, compounded semiannually) and you
have decided to make weekly payments. If the amortization period is 25 years and rates
do not change, how much will you pay in interest over the life of the mortgage? (assume
52 weeks in one year)
A) $127,895
B) $253,618
C) $387,555
D) $553,618
E) $576,016
Answer B
The weekly payment for the 25-year loan
(1 + i
w)
52= 1 + EAR = (1 + 2.80%)² => (1 + i
w) = 1.0106269, that is i
w = 0.106269%
$300,000 = PMT x PVIFA(0.106269%,1,300)
PMT = $425.86
Total interest paid with the 25-year loan:
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