Question

A) You have identified an investment opportunity in a small office building that is on the market for $4.75M. A lender offers to provide financing in the form of a $2,850,000 mortgage with a 7% interest rate, 20-year amortization, and 10-year term. Assuming payments are made on an annual basis, what is the corresponding payment?

b) What is the balance due at maturity?

Answer 1

The corresponding annual payment would be approximately $376,717.38. The balance due at maturity would be approximately $1,798,934.65.

Step-by-step explanation:

To calculate the annual payment on a mortgage, we can use the formula:

Payment = P*r/(1 - (1+r)^(-n))

Where:

• P = Principal (Initial loan amount)
• r = Interest rate per period
• n = Number of periods

In this case, P = $2,850,000, r = 7%, and n = 10. Plugging in these values, we can find the payment:

Payment = 2,850,000*0.07/(1 - (1+0.07)^(-10)) = $376,717.38

Therefore, the corresponding annual payment would be approximately $376,717.38.

To calculate the balance due at maturity, we can use the formula:

Balance due = Principal*(1+r)^n - Payment*((1+r)^n - 1)/r

Here, P = $2,850,000, r = 7%, n = 10, and Payment = $376,717.38. Plugging in these values, we can find the balance due at maturity:

Balance due = 2,850,000*(1+0.07)^10 - 376,717.38*((1+0.07)^10 - 1)/0.07 = $1,798,934.65

Therefore, the balance due at maturity would be approximately $1,798,934.65.