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Chapter 3 Mathematics of Finance - page 11 / 20

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Barnett/Ziegler/Byleen Finite Mathematics 12e

11

Amortization Problem Solution

Problem: A bank loans a customer $50,000 at 4.5% interest per year to purchase a house. The customer agrees to make monthly payments for the next 15 years for a total of 180 payments. How much should the monthly payment be if the debt is to be retired in 15 years?

Solution: The bank has bought an annuity from the customer. This annuity pays the bank a $PMT per month at 4.5% interest compounded monthly for 180 months.

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