Suppose, you sold an apartment house by accepting $1,000,000 down and monthly payments of $15,000 per month for 10 years. You place the entire down payment and all payments as they are received into a money market account earning 5 percent compounded monthly. What is the amount you will have accumulated in the money market account when the mortgage is paid of

Question

Conor Richard

Business

18 August, 04:58

Suppose, you sold an apartment house by accepting $1,000,000 down and monthly payments of $15,000 per month for 10 years. You place the entire down payment and all payments as they are received into a money market account earning 5 percent compounded monthly. What is the amount you will have accumulated in the money market account when the mortgage is paid of

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Answers (1)

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Iliana Mann · Answer 1

The present value is $3,991,855.88

Explanation:

The interest given can be converted into effective annual rate using the below formula:

EAR = [ (1 + stated rate/no. of compounding periods) ^no. of compounding periods - 1] * 100

EAR = (1+5%/12) ^12-1*100

=5.12%

FV of downpayment=PV * (1+r) ^N

=$1000000 * (1+5.12%) ^10

=$ 1,647,606.60

Future of an ordinary annuity=A ((1+r) ^N-1/r

=$15000 * ((1+5.12%/120) ^10*12-1)) / 5.12%/120

=$2,344,249.28

Total present values=2344249.28+1,647,606.60

=$3,991,855.88