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13 October, 06:07

Kramer Manufacturing would like to purchase a warehouse for $450,000. How much will the monthly payment be if Kramer can finance the warehouse for 10 years at a 4% annual interest rate?

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  1. 13 October, 06:13
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    The present value is $450,000, and we have 4% annual interest over 10 years. Since we are looking at monthly payments, we further divide the 10 years into 120 months. The monthly interest is calculated as:

    (1.04) = (1+i) ^12

    i = 0.003274

    Then using the formula for periodic payments:

    PP = PV*i * (1+i) ^n / [ (1+i) ^n - 1]

    PP = (450,000) * 0.03274 * (1.03274) ^120 / (1.03274^120 - 1)

    PP = $4540.75

    Therefore, the monthly payment is $4,540.75.
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