(Amortization Word Problems)
To solve an exponential or logarithmic word problem, convert the
narrative to an equation and solve the equation.
There is a relationship between the mortgage amount, the number of payments, the amount of the payment, how often the payment is made, and the interest rate. The following formulas illustrate the relationship:
where P = the payment, r = the annual rate, M = the mortgage
amount, t = the number of years, and n = the number of payments
Problem 3: Suppose a bank offers you a 10% interest rate on a
20-year mortgage to be paid back with monthly payments. Suppose the
most you can afford to pay in monthly payments is $700. How much of
a mortgage could you afford?
Solution and Explanations:
10% for r (the annual interest rate), 20 for t (the term of the mortgage in years), 12 for n (the number of payments per year, and $700 for P (the monthly payment), You are solving for M (the mortgage amount)
The most you afford for a mortgage, given your constraints, is $72,537.23.
If you would like to work another problem and review the answer and the solution, click on problem.
Do you need more help? Please post your question on our S.O.S. Mathematics CyberBoard.
Author: Nancy Marcus