Question

In: Finance

You wish to buy a $10,100 dining room set. The furniture store offers you a 2-year...

You wish to buy a $10,100 dining room set. The furniture store offers you a 2-year loan with an APR of 9 percent. What are the monthly payments?

Payment ___ per month?

How would the payment differ if you paid interest only?

payment ___ per month

Solutions

Expert Solution

a. Payment per month $ 461.42
Working:
Monthly payment = Loan amount/Present value of annuity of 1
= $           10,100 / 21.88915
= $           461.42
Working:
Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.0075)^-24)/0.0075 i 9%/12 = 0.0075
= 21.88915 n 2*12 = 24
b. Payment per month $    75.75
Working:
Payment per month = Monthly Interest
= Loan Amount x Interest rate x 1/12
= $           10,100 x 9% x 1/12
= $             75.75

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