Question

financial scenario: evaluating home purchase financing options
scenario background:
linda is considering buying a house priced at $300,000 and is exploring different financing options. she wants to allocate her mortgage based on different portions of the loan at varying interest rates, which are offered as part of a blended - rate mortgage program.
mortgage financing options:

• mortgage total: $300,000
• portions and interest rates:
• portion a:
• amount: $100,000
• interest rate: 3.0% per annum
• portion b:
• amount: $150,000
• interest rate: 3.5% per annum
• portion c:
• amount: $50,000
• interest rate: 4.0% per annum

is the formula in cell c6 = d5 * 100 that calculates the overall weighted average interest rate, correct?

• yes, the correct formula is: = d5 * 100
• no, the correct formula is: = d5 / b5
• no, the correct formula is: = b5 / d5
• no, it the correct formula is: = d5

Explanation:

Step1: Recall Weighted Average Formula

The weighted average interest rate formula is $\frac{\sum (\text{Amount}_i \times \text{Rate}_i)}{\sum \text{Amount}_i}$. First, calculate the total interest for each portion: Portion A: $100,000 \times 0.03$, Portion B: $150,000 \times 0.035$, Portion C: $50,000 \times 0.04$. Sum these (let's call this total interest $D5$) and divide by total mortgage ($B5 = 300,000$) to get the weighted average. So the formula should be $D5 / B5$.

Step2: Evaluate Given Formula

The given formula is $D5 * 100$, which is incorrect. The correct formula is $D5 / B5$.

Answer:

No, the correct formula is: $= D5/B5$