You have just arranged for a $1,500,000 mortgage to finance the purchase of a large tract of land. The mortgage has an APR of 5 percent, and it calls for monthly payments over the next 20 years. How much interest are you paying at the end of the 20th month?

$130,085

Explanation:

Mortgage amount = P = $1,500,000

Annual percentage rate (APR) = r = 5% annually = 5%/ 12 = 0.4167%

Compounding Monthly

Period = n = 20 months

Compounded interest on 20th month = P (( 1 + r )^n ) - 1 )

Compounded interest on 20th month = $1,500,000 (( 1 + (0.004167) )^20 ) - 1)

Compounded interest on 20th month = $130,084.65 = $130,085

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