The McDonald Group purchased a piece of property for £1.2 million.It paid a down payment of 20% in cash and ﬁnanced the balance.The loan terms require monthly payments for 15 years at an annual percentage rate of 7.75% compounded monthly.What is the amount of each mortgage payment?

Question

Quizplus · Accepted Answer

The balance that was financed is 80% of £1.2 million, which is:

(80/100) x £1,200,000 = £960,000

The loan terms state that payments are to be made monthly for 15 years, which is 180 months. The monthly interest rate is the annual rate of 7.75% divided by 12, which is 0.647%.

Using the formula for a loan payment:

Payment = P [(r(1+r)^n) / ((1+r)^n - 1)]

where P is the principal amount borrowed, r is the monthly interest rate, and n is the number of monthly payments.

Substituting the values:

Payment = £960,000 [(0.00647(1+0.00647)^180) / ((1+0.00647)^180 - 1)]

Payment = £9,036.25

Therefore, the answer is C - £9,036.25.

The McDonald Group Purchased a Piece of Property for £1