Question

Aerotron Electronics has just bought a used delivery truck for $15,000. The small business paid $1,000 down and financed the rest, with the agreement to pay nothing for the entire 1st year and then to pay $566.83 at the end of each month over years 2, 3, and 4 (first payment is in 13th month).

a. What nominal interest rate is Aerotron paying on the loan?

b. What effective interest rate are they paying?

c. How much of the 14th month’s payment is interest? How much is principal?

d. How much of the 18th month’s payment is interest? How much is principal?

e. How much of the 22nd month’s payment is interest? How much is principal?

Answer 1

Advance Amount = 15000 – 1000 = $14000

Regularly scheduled payment (P) = $566.83

Installment is done in every long stretch of year 2, 3 and 4. In this way, an all-out month of an installment is 36.

Give, Monthly intrigue a chance to rate = R

At that point

Credit Amount = (P*(1-1/(1+R)^36)/R))/(1+R)^12

Credit Amount = (566.83*(1-1/(1+R)^36)/R)/(1+R)^12

At R = 1.2%

PV of credit installment = $14291.539

At R = 1.3%

PV of credit installment = $13885.76

Along these lines, according to the strategy for addition,

R = 1.2% + ((PV at 1.2% - Loan sum)/(PV at 1.2% - PV at 1.3%))*(1.3% - 1.2%)

R = 1.2% +((14291.539 – 14000)/( 14291.539 - 13885.76))*(1.3% - 1.2%)

R = 0.012718 = 1.2718% approx

a.

Ostensible Interest Rate = 12*R = 12*1.2718% = 15.2616%

b.

Powerful Interest Rate = (1+R)^12 – 1 = (1+0.012718)^12 – 1

Powerful Interest Rate = 0.163757 = 16.3757%

c.

in the fourteenth month

intrigue installment = $202.6356

Important installment = $364.1943

d.

in the eighteenth month

intrigue installment = $183.7518

Important installment = $383.0781