Question

Ann wants to buy an office building which costs $2,000,000. She obtains a 30 year, Interest Only fixed rate mortgage at 80% LTV, at an annual interest rate of 5%, with monthly compounding and monthly payments. How much is Ann’s monthly payment?

	A.	$10,736.43
	B.	$8,589.15
	C.	$6,666.67
	D.	$8,333.33

Answer 1

answer)

the value of the building is $2,000,000. since the LTV is 80%. so the amount of loan will be (2,000,000* 80%) = 1,600,000.

now we will use financial calculator, we will convert the annual interest rate into monthly interest rate, which will be

0.41%.

now we will use the TVM mode:

PV = (1,600,000)

I/Y = 0.41%

n = 360

calculate PMT = $8589.15

so the answer will be option (b)