Question

Alpha Corp. has decided to take out a large corporate loan to purchase new equipment. The firm will finance $3.25 million over 10 years at 6.75% APR through MegaBank. How much are the monthly payments for Alpha?

Select one:

$16,453

$41,562

$37,318

$28,911

$27,083

Answer 1

The amount is computed as follows:

Present value = Monthly payment x [ (1 – 1 / (1 + r)ⁿ) / r ]

r is computed as follows:

= 6.75% / 12 (Since the payments are on monthly basis, hence divided by 12)

= 0.5625% or 0.005625

n is computed as follows:

= 10 year x 12 months (Since the payments are on monthly basis, hence multiplied by 12)

= 120

So, the monthly payments is computed as follows:

$ 3,250,000 = Monthly payment x [ (1 - 1 / (1 + 0.005625)¹²⁰ ) / 0.005625 ]

$ 3,250,000 = Monthly payment x 87.08972018

Monthly payment = $ 3,250,000 / 87.08972018

Monthly payment = $ 37,318