1. A mortgage of $200,000 requires payments of $1395.40 per month at 5.7% compounded quarterly. How long will it take to repay the loan? What amount of interest
does the purchase pay?

a) How long will it take to repay the loan?

20 years

b) What amount of interest does the purchase pay?

$134,896

Step-by-step explanation:

a) How long will it take to repay the loan?

In the above question, they are asking you for the Loan duration

The Formula for Loan duration(T) =

ln (- m/(r÷n) × C - m)/In (1 + r/n)

Where:

m = monthly payments = $1395.40

C = Amount of mortgage =$200,000

r = Interest rate = 5.7% = 0.57

n = compounded quarterly = 4

T = ln (- 1395.40/(0.57÷4) × 200,000 - 1395.40)/In (1 + 0.57/4)

T = 20 years.

Therefore, it will take 20 years to repay the Loan.

b) What amount of interest does the purchase pay?

The total number of payments =

Loan duration × Number of months

Number of months = 12 months( because it is monthly payment)

Loan duration = 20 years

Total number of payments = 240 payments.

In the question, we are given the amount paid monthly payment as

$1,395.40

Total amount paid = Monthly payments × Total number of payments

= $1,395.40 × 240

= $334,896

The amount of Interest the purchase pay = $334,896 - $200,000

= $134,896