Question

Johnson Company just acquire a building for $200,000 through financing from Bank of America at a 5% annual interest rate, with 20 years to maturity of the loan. What would be Johnson Company's monthly mortgage payment?

Answer 1

To calculate the monthly mortgage payment for a $200,000 loan at a 5% annual interest rate over 20 years, the formula for an annuity is used, yielding a payment of approximately $1,319.91 per month.

Step-by-step explanation:

The student is asking how to calculate the monthly mortgage payment for Johnson Company's building acquisition, which values $200,000 with a 5% annual interest rate over a 20-year period. To find the monthly payment, you can use the formula for an annuity, which is:

PMT = P[r(1+r)ⁿ]/[(1+r)ⁿ - 1]

Where:
P = principal loan amount ($200,000)
r = monthly interest rate (annual rate / 12, so 0.05 / 12)
n = total number of payments (20 years * 12 months/year)

To solve this, first calculate the monthly interest rate, which is 0.05/12 = 0.0041667, and the total number of payments, which is 20 * 12 = 240. Plugging these into the formula gives us:

PMT = 200,000[0.0041667(1+0.0041667)²⁴⁰]/[(1+0.0041667)²⁴⁰ - 1] = $1,319.91 approximately
The monthly payment would thus be approximately $1,319.91.