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#1
07-03-2012, 05:56 PM
 raindancer CAS SOA Join Date: Jun 2012 College: Seniorsquid Posts: 11
Help with an immediate annuity problem

Hey guys,

So I'm kinda stuck on this problem; I seem to have set up the problem correctly, but I keep getting the wrong answer no matter what I try.

If someone could point out what I'm doing wrong, it would be awesome.

The question:

The Smith family is looking to buy a new home. They find one they really like for \$200,000. They can afford a monthly payment of \$1,250. Their mortgage broker finds a rate of 7% convertible monthly for 30 year mortgages. How much of a down payment do they need to make?

The correct answer is: 12, 115.54

This is my work, I'm way off, but I'm pretty sure I set up the problem correctly:

Any help would be appreciated.

Thanks!
#2
07-03-2012, 06:25 PM
 Gandalf Site Supporter Site Supporter SOA Join Date: Nov 2001 Location: Middle Earth Posts: 26,452

When you try to calculate the 360-payment annuity at i=.07/12, you correctly use (.07/12) in the 1-v^360, but then when you take (1-v^360)/i, you use .07 instead of .07/12
#3
07-03-2012, 06:36 PM
 raindancer CAS SOA Join Date: Jun 2012 College: Seniorsquid Posts: 11

Quote:
 Originally Posted by Gandalf When you try to calculate the 360-payment annuity at i=.07/12, you correctly use (.07/12) in the 1-v^360, but then when you take (1-v^360)/i, you use .07 instead of .07/12
Wow, that was a careless/stupid mistake, can't believe I didn't see that lol. Thanks!
#4
07-03-2012, 07:36 PM
 Kaner3339 Member SOA Join Date: Jun 2011 Location: Canada Studying for MLC & MFE Posts: 899

Do you really need to include the dollar sign?
#5
07-03-2012, 08:17 PM
 raindancer CAS SOA Join Date: Jun 2012 College: Seniorsquid Posts: 11

Quote:
 Originally Posted by Kaner3339 Do you really need to include the dollar sign?
Yup. Lol

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