Year 12 Finance - Home loans 

Mathew wishes to borrow from a bank for a home loan. The bank offers him an annual interest rate of 3% per annum, compounding monthly. He knows that he can afford to repay $2000 per month, and he wishes for the entire loan to be repaid in exactly 25 years.

What is the greatest amount that Mathew can borrow from the bank? Please include as much working as possible, question is worth 5 marks. (From year 12, Australia Adv maths)


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  • Hey, Would you not use the annuity formula for this question? And use a geometric progression? Since its a present value annuity problem?

  • Is it not looking for the maximum amount he can borrow, for a home loan, surely thats a larger number?

    • Martin Martin

      You are right, I will fix it

  • Martin Martin

    I fixed the solution, sorry for the mix-up. The above explanation is essentially the derivation of annuities formula.

The answer is accepted.
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