Question

Bulk Purchases just purchased a new warehouse. To finance the purchase, the firm arranged for a 25-year mortgage for 80 percent of the $1,800,000 purchase price. The monthly payment is $10,800. What is the APR? The EAR?

Answer 1

Answer:

7.67%, 7.94%

Explanation:

Loan amount =.80 ×$1,800,000 = $1,440,000

PV = .80($1,800,000) = $10,800× [(1 - {1 / [1 + (r / 12)]300}) / (r /12)]

r = 7.6687, or 7.67 percent

EAR = [1 + (.076687/12)]12-1 = .0794, or 7.94 percent