A company negotiated a mortgage from a bank in order to acquire a land. Mortgage payments are $15,500 made every month for 7 years. The first payment to bank will be made now. If the annual interest rate is 3.45% and compounding is monthly, calculate the maximum price of the land which the company can buy using only this mortgage.
We are given the following information about an annuity due because the first payment is being made today:
Monthly payment | PMT | 15500 |
rate of interest | r | 3.45% |
number of years | n | 7 |
Monthly Compounding | frequency | 12 |
Present value | PV | To be calculated |
We need to solve the following equation to arrive at the required PV
So the PV is $1158564.61, this is the maximum price of land he can
pay with this mortgage
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