Question

When your company bought a new spectral analyzer, you arranged to pay for it with two payments:

• $10,000 two months ago, and
• $8,000 one month from today.

You only paid $6,000 two months ago and you won’t be able to make your payment one month from now. You have arranged with the seller to settle your debt by making two equal payments:

• the first payment 4 months from now, and
• the second payment 7 months from now.

Part A: How much will each of the equal payments be if the seller is charging 9% simple, with a focal date 4 months from today? (Your work must include a complete time-line diagram.)

Part B: How much extra interest will you have to pay for not making the originally planned payments?

Answer 1

PART A:

	-2	-1	0	4	7
Payable	$10,000.00	$8,000.00
(-) Paid	$   6,000.00	$            -
Balance Payable	$   4,000.00	$8,000.00
(+) Interest @ 9%p.a (i.e, 0.75% per month	$        30.00	$      60.00
Ampount Payable	$   4,030.00	$8,060.00	$12,090.00
Installments to be paid				$6,112.24	$6,112.24

Schedule

Month	Amount	Payment	Interest	Balance
1	$12,090.00		$   90.68	$12,180.68
2	$12,180.68		$   91.36	$12,272.03
3	$12,272.03		$   92.04	$12,364.07
4	$12,364.07	$6,112.24	$   46.89	$   6,204.94
5	$   6,204.94		$   46.54	$   6,158.40
6	$   6,158.40		$   46.19	$   6,112.22
7	$   6,112.22	$6,112.24	$    -0.00	$         -0.02

PART B

Extra interest you have to pay for not making originally planned payments:

Total Interest as per above table = $413.68

Interest Actually Payable = $90

Extra Interest = $ 323.68