Numerical examples
Example of Problem A. Suppose you secure a mortgage in the amount of $80,000 to be amortized over 30 years with equal monthly installments. The interest rate is 10 percent per annum convertible monthly and you are charged 2 points for the loan. Determine the true rate of interest you are paying for the mortgage.
Solution. Here A = 80,000,n=30,r=0.01, and P=0.02. Using equation (2), we find k=702.0573. Using these values, the iteration (3) becomes