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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Business

Maurice Erickson

5 July, 11:13

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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Johnathon Lawrence · Answer 1

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.