Oprah Winfrey has closed on a 42-acre estate near Santa Barbara, California, for

Question

Oprah Winfrey has closed on a 42-acre estate near Santa Barbara, California, for $53,000,000. If Oprah puts 20% down and finances at 7% for 30 years, what would her monthly payment be? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Oprah Winfrey has closed on a 42-acre estate near Santa Barbara, California, for $53,000,000. If Oprah puts 20% down and finances at 7% for 30 years, what would her monthly payment be? (Do not round intermediate calculations. Round your answer to the nearest dollar amount.)

Explanation / Answer

Total Value to be paid is  $53,000,000

Oprah paid 20% of $53,000,000 now (i.e. she paid upfront $10,600,000) and she takes the rest (i.e. $53,000,000 - $10,600,000 = $42,400,000) on a loan at 7% for 30 years.

Now we have to compute monthly payments

Using the Present value concept we can form the following equation:

$42,400,000 = PV of all monthly payments done for 30 yrs @ 7%

Note this 7% is annual rate to convert it into montly rate we use 7%/12 = 0.58%

30 yrs = 30*12 months = 360 months

Assuming that the student is using a BAII Plus Texas instrument calculator, we can compute the per month payment for next 30 yrs. (basically its an annuity payment for next 30 yrs with PV = 42.4 Mn)

1) press the 2ND key and press CLR TVM

2) type 360 (time period in months) and press N and press ENTER

3) Type 0.58 (monthly rate) and press I/Y and press ENTER

4) Type -42,400,000 (with negative sign to get meaningful results) and press PV and press ENTER

5) Now to compute per month payment press CPT and PMT

Answer is : Monthly payment = $280,950.15

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