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30 April, 03:50

Given the following information on a fixed-rate fully amortizing loan, determine the maximum amount that the lender will be willing to provide to the borrower: loan term: 30 years; monthly payment: $800; interest rate: 6%.

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  1. 30 April, 04:13
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    The maximum amount that the lender will be willing to provide to the borrower is $9,006.

    Explanation:

    Fixed payment for a specified period is know as the annuity. We will use the formula of present value of present value of annuity payment.

    APV = C x [ (1 - (1 + i) ^-n) / i ]

    C = Monthly payment = $800

    Interest rate = i 8% = 0.08

    n = number of years = 30 years

    APV = $800 x [ (1 - (1 + 0.08) ^-30) / 0.08 ]

    APV = $800 x 11.2578

    APV = $9,006

    So, The maximum amount that the lender will be willing to provide to the borrower is $9,006.
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