In: Finance
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
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 | ||||||||||||