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 amount financed is 80% of $1.2 million which is $960,000. Use the formula for monthly mortgage payments: 
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1] 
where M is the monthly mortgage payment, P is the amount financed, i is the monthly interest rate (APR divided by 12), and n is the total number of payments (15 years x 12 months per year = 180 payments). 
Plugging in the values, we get: 
M = 960000 [ 0.0775/12 (1 + 0.0775/12)^180 ] / [ (1 + 0.0775/12)^180 – 1] 
M = $9,036.25, which is closest to choice C.

The McDonald Group Purchased a Piece of Property for $1