15. Bobby took out a commercial mortgage to pay for his new podcast studio. It is an interest-only loan of $800,000 with an interest rate of 4.5%. How much will Bobby pay in interest over the year?
Answer: B
Bobby will pay $36,000 in interest over the year.
To calculate the annual interest payment on an interest-only loan, multiply the loan amount by the interest rate. In this case, Bobby's loan of $800,000 at an interest rate of 4.5% results in an interest payment of $36,000 for the year.
A) $10,500
This option is incorrect. To arrive at this figure, one might mistakenly calculate the interest based on a significantly lower interest rate or an incorrect loan amount. The proper calculation based on the given loan amount and interest rate does not support this figure.
B) $36,000
This option is correct. The interest for the year is calculated as follows: $800,000 multiplied by 4.5% equals $36,000. This accurately reflects the total interest payment Bobby will make on his commercial mortgage.
C) $45,000
This option is incorrect. This figure may arise from a misunderstanding of the interest rate application or an incorrect multiplication of the loan amount. The correct calculation clearly shows that the annual interest payment is $36,000, not $45,000.
D) $3,500
This option is incorrect. Such a low figure suggests a miscalculation that likely results from applying an unrealistic interest rate or using incorrect figures altogether. The annual interest payment based on the given loan amount and interest rate is significantly higher.
Conclusion
Bobby's annual interest payment of $36,000 correctly reflects the product of his $800,000 loan and the 4.5% interest rate. The other options do not align with the mathematical calculations necessary to determine the correct interest amount, affirming that option B is the only valid choice based on the provided details.