- CFA Exams
- CFA Level I Exam
- Study Session 2. Quantitative Methods (1)
- Reading 6. The Time Value of Money
- Subject 4. The Future Value and Present Value of a Series of Equal Cash Flows (Ordinary Annuities, Annuity Dues, and Perpetuities)

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**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

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**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? |