Question

Norma finances a lot that cost  $11,000  for 2 years at  6%  per year compounded quarterly. How much are her quarterly payments?

a) $1,479.42

b) $1,469.42

c) $1,499.42

d) $1,439.42

e) $1,459.42

f) None of the above.

Answer 1

Here he finances 11000, thus we have to calculate quarterly payment such that present value of these quarterly payment equals 11000.

Present Value of periodic payment is given by :

PV = (P/r)(1 - 1/(1 + r)ⁿ)

where PV = Present value that we want to be equal to 11000, r = interest rate of a period(here period is quarter) = 6%/4 = 1.5% = 0.015, n = number of periods = number of quarters = 8

Thus, PV = (P/r)(1 - 1/(1 + r)ⁿ)

=> 11000 = (P/0.015)(1 - 1/(1 + 0.015)⁸)

=> P = 1469.42

Thus Quarterly payments = 1469.42

Hence, the correct answer is (b) $1,469.42