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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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  1. 18 August, 05:23
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    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
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