Question

On january 1, 2024, Bloomfield Enterprises purchases a building for $327,000 with a $57,000 down payment and a 7%, 10-year mortgage of $270,000. What is the monthly installment payment?

a. $2,173.50
b. $3,134.93
c. $2,700.00
d. $3,606.75

Answer 1

The monthly installment payment for the mortgage is calculated using the monthly payment formula on an amortizing loan. After converting the annual interest rate to a monthly rate and determining the number of payments, the monthly payment is found to be $3,134.93.

Step-by-step explanation:

To calculate the monthly installment payment for Bloomfield Enterprise's mortgage, we need to use the formula for the monthly payment on an amortizing loan:

M = P [ i / (1 - (1 + i)-n) ]

Where:

• M is the monthly payment
• P is the principal amount of the loan ($270,000)
• i is the monthly interest rate (7% annual rate divided by 12 months)
• n is the total number of payments (10 years * 12 months per year)

First, let's convert the annual interest rate to a monthly rate:

i = 7% / 12 months = 0.5833% per month

Then, let's calculate n:

n = 10 * 12 = 120 payments

Now, plug these into the formula:

M = 270,000 [ 0.005833 / (1 - (1 + 0.005833)-120) ]

Calculating this gives us:

M = $3,134.93

The monthly installment payment is $3,134.93. Therefore, the correct answer is (b).