Company A purchased a piece of property for $4.5 million. The firm paid a down payment of 20 percent in cash and financed (borrowed) the balance. The loan terms require monthly payments for 20 years at an annual percentage rate of 7.25 percent, compounded monthly. What is the amount of each monthly mortgage payment? Show your work. (Hint: Use the monthly interest rate with at least six decimal places to avoid rounding errors.)
This can be solved using the Present value of annuity | ||
Present value of annuity is = P*((1-(1+r)^-n/r) | ||
P is Payment made for each month = ? | ||
"r" is Rate of Interest = (7.25%/12) = 0.60% per month | ||
"n" No of months = (20*12) =240 months | ||
Financed (borrowed) amount is = (4.5*1000000*80%) | ||
Financed (borrowed) amount is = $ 3,600,000/. | ||
Present value of annuity is = $ 3,600,000/. | ||
3600000=(P*(1-(1+0.006)^-240)/0.006) | ||
3600000=(P*126.132512) | ||
P is = (3600000/126.132512) | ||
P is = $ 28,541.412087/. | ||
Each monthly mortgage payment is $ 28,541.412087/. | ||
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