Upon graduating from UCI, you start a job in finance earning $72,000 per year and decide to buy a home. You can afford to pay no more than $1,000 per month for the fixed monthly payments on a 30-year fixed-rate home loan (mortgage) and the current conventional 30-year fixed mortgage annual interest rate that you qualify to borrow at is 4%.What is the maximum size home loan you can afford? Please round your numerical answer to the nearest dollar.

$209,461  

Explanation:

The maximum size home loan the employee can afford is computed using the pv formula in excel as below:

=-pv(rate,nper,pmt,fv)

rate is the annual interest rate of 4% divided by 12 months

nper is the number of months the payment of $1000 would be paid i.e 30*12=360

pmt is the monthly payment which is $1000

fv is the future worth of total repayments which is unknown

=-pv(4%/12,360,1000,0)=$209,461  

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