An investor obtained a loan of $180,000 to buy a car wash business. The monthly mortgage payment was based on 25 years at 5%. Find the monthly mortgage payment. Round your answer to the nearest dollar.

Question

Quizplus · Accepted Answer

Using the mortgage formula, we get:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

where M = monthly mortgage payment, P = principal amount borrowed, i = monthly interest rate (5% / 12), and n = total number of months (25 years * 12 months/year = 300 months).

Plugging in the values, we get:

M = 180000 [ 0.00416667(1 + 0.00416667)^300 ] / [ (1 + 0.00416667)^300 – 1]
M = 180000 [ 0.00416667(1.00416667)^300 ] / [ (1.00416667)^300 – 1]
M = 180000 [ 0.00416667(5.407904639) ] / [ 5.407904639 – 1 ]
M = 180000 [ 0.02200002 ] / [ 4.407904639 ]
M = 180000 [ 0.004990597 ]
M = 897.7075828

Rounding to the nearest dollar, we get:

M = $1052

Therefore, the best choice is B.

An Investor Obtained a Loan of $180,000 to Buy a Car