Question 7.5: A mortgage of £150,000 at 6% compounded monthly is amortized......

The number of payments n = #years ∗ payments per year = 20 ∗ 12= 240.

The interest rate i = 6%/12 = 0.5% = 0.005.

1. We calculate the amount of the repayment A by substituting for n and i and obtain

= \frac{750}{\left[1-\frac{1}{3.3102}\right]}

= £1074.65

2. The total amount paid is the number of payments ∗ amount of each payment = n ∗ A = 240 ∗ 1074.65 = £257,916.

3. The total cost of financing = total amount paid – original principal = 257,916 – 150,000 = £107,916.