On January 1, 2009, your brother's business obtained a 30-year amortized mortgage loan for $250,000 at a nominal annual rate of 7.0%, with 360 end-of-month payments. The firm can deduct the interest paid for tax purposes. What will the interest tax deduction be for 2009?
A) $17,419.55
B) $17,593.75
C) $17,769.68
D) $17,947.38
E) $18,126.85

Question

Quizplus · Accepted Answer

The correct answer is A because the interest tax deduction for 2009 is $17,419.55. This can be calculated using the formula for the monthly payment of an amortized loan:PMT = (PV * r) / (1 - (1 + r)^-n)where:PMT is the monthly paymentPV is the present value of the loanr is the monthly interest raten is the number of monthsIn this case, the present value of the loan is $250,000, the monthly interest rate is 7.0% / 12 = 0.5833%, and the number of months is 30 * 12 = 360. Plugging these values into the formula, we get:PMT = (250,000 * 0.005833) / (1 - (1 + 0.005833)^-360)PMT = $1,741.96The interest tax deduction for 2009 is then simply the total interest paid in 2009, which is 12 * $1,741.96 = $17,419.55.

On January 1, 2009, Your Brother's Business Obtained a 30-Year