- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 2. Time Value of Money in Finance
- Subject 2. Fixed Income Instruments and the Time Value of Money
CFA Practice Question
A consumer is shopping for a home. His budget will support a monthly payment of $1,300 on a 30-year mortgage with an annual interest rate of 7.2 percent. If the consumer puts a 10 percent down payment on the home, the most he can pay for his new home is closest to ______.
A. $191,518
B. $210,840
C. $212,798
Explanation: The consumer's budget will support a monthly payment of $1,300. Given a 30-year mortgage at 7.2 percent, the loan amount will be $191,517.76 (N = 360, %I = 0.6, PMT = 1,300, solve for PV). If he makes a 10% down payment, then the most he can pay for his new home = $191,517.76 / (1 - 0.10) = $212,797.51
User Contributed Comments 7
User | Comment |
---|---|
MrFortei | Someone please help with how $191,517,76 was arrived at, I seem to be getting PV= $175,526.11 using N=360, %I=0.6, PMT=1,300 |
titi82000 | Either check if your mode is END or if you cleared everything before. |
MrFortei | Thanks titi82000 I got it now |
finnerd23 | Why do you divide by (1 -.10) instead of multiplying $191,517.76 by .10 and adding that together to make $210,669.53 |
Joshua3964 | finnerd23, that's because a 10% down payment means 10% of the TOTAL purchase price (i.e., loan plus down payment), not 10% of the loan |
seejs8396 | I=0.6, N=360, PMT=1300, FV=0, CPT FV |
amja9407 | Where did you get I= 0.6? Why wouldn't I = 0.72? |