Question

Fifty percent of the purchase price is debt. The debt has an interest rate of 4%...

Fifty percent of the purchase price is debt. The debt has an interest rate of 4% per annum and you must repay \$25,000 in principal at the end of each year.

Questions

1. How much mortgage is recorded at the time of purchase?
1. 400,000
2. 500,000
3. 550,000
4. 600,000
2. What is your mortgage balance at the time of sale?
1. 375,000
2. 475,000
3. 500,000
4. 625,000

Working Notes:

Loan Payment / Principal Paid at the end of each year = \$25,000

Interest Rate = 4% p.a.

Mortgage Balance (at the time of Sale) = Loan Payment / Interest Rate = \$25,000 / 4% = \$625,000

Mortgage Recorded at the time of Purchase = Total Balance at year end – Principal paid at year end

= \$625,000 - \$25,000 = \$600,000

Questions

1. How much mortgage is recorded at the time of purchase?

The Correct Answer is Option D = \$600,000

2. What is your mortgage balance at the time of sale?

The Correct Answer is Option D = \$625,000

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