CFA Practice Question

There are 410 practice questions for this study session.

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?
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