Question

Suppose, you sold an apartment house by accepting $1,000,000 down and monthly payments of $15,000 per month for 10 years. You place the entire down payment and all payments as they are received into a money market account earning 5 percent compounded monthly. What is the amount you will have accumulated in the money market account when the mortgage is paid off?

Answer 1

EAR = [(1 +stated rate/no. of compounding periods) ^no. of compounding periods - 1]* 100

Effective Annual Rate = ((1+5/12*100)^12-1)*100

Effective Annual Rate% = 5.12

FV of downpayment

Future value = present value*(1+ rate)^time

Future value = 1000000*(1+0.0512)^10

Future value = 1647606.6

FV of monthly payments

FVOrdinary Annuity = C*(((1 + i )^n -1)/i)

C = Cash flow per period

i = interest rate

n = number of payments

FV= 15000*(((1+ 5.12/1200)^(10*12)-1)/(5.12/1200))

FV = 2344249.28

total = 2344249.28+1647606.6 = 3991855.88