Corporate Finance Question

Question

Kingston Development Corp. purchased a piece of property for $2.79 million. The firm paid a down payment of 15 percent in cash and financed the balance. The loan terms require monthly payments for 30 years at an annual percentage rate of 7.75 percent, compounded monthly. What is the amount of each mortgage payment?

Answer 1

Hi There:

Step #1 = Compute the amount of the down payment by taking 2.79M * 15% = $418,500.

Step #2 = Take the total loan balance - down payment = $2,790,000 - $418,500 = $2,371,500‬. This is the amount financed.

Using a financial calculator or Excel, we will solve for Payment (PMT):

The inputs will be as follows (note, since this is monthly we must format with monthly interest and periods)

N (# of periods) = 30years * 12 Months = 360 Periods

I = 7.75% / 12 = 0.64583

PV = $2,371,500 (found above)

FV = $0 (the loan will be paid off)

PMT = solving for

End mode (payment is made at the end of the period)

I received a value of e.g. the payment amount is $153,159.38.

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