Answer:
- The 20 year 8% year loan is more economical
- The buyer will save $159650
Step-by-step explanation:
Use the given formula to calculate each option and compare.
Option 1
- P = $210000
- r = 8.5% = 0.085
- t = 30
- n = 1
Find the PMT:
- [tex]P(r/n)/(1-(1+r/n)^{-nt})=210000*(0.085)/(1-(1+0.085)^{-30})=19541[/tex]
Find the total interest amount:
- 30*$19581 - $210000 = $377430
Option 2
- P = $210000
- r = 8% = 0.08
- t = 20
- n = 1
Find the PMT:
- [tex]P(r/n)/(1-(1+r/n)^{-nt})=210000*(0.08)/(1-(1+0.08)^{-20})=21389[/tex]
Find the total interest amount:
- 20*$21389 - $210000 = $217780
We see option 2 reveals less interest amount, so is more economical.
Saving on interest:
- $377430 - $217780 = $159650
