Question

John buys a new solar power energy grid worth $408,756 for his
company's warehouse. The contract stipulates payments will use a
nominal interest rate of 7.7% compounded monthly for 40 months.
John agrees to pay $ 27 as down payment on the condition that the
first payment will not be until the start of the 8 month if he pays
interest on the current balance until he begins payments.

Determine the monthly payments.

Answer #1

Price of the grid = $408756

Monthly interest rate = 7.7%/12

Time for payment = 33 months

Down payment = $27

Net amount of loan = 408756-27 = $408729

Now, interest on loan is already paid, so starting 8th month, loan amount will remain same as $408729. Further, the payment starts in the beginning of each month starting month-8, so it is a case of annuity due.

Let, monthly payment = P

Then,

408729 = (P*(1-1/(1+7.7%/12)^33)/(7.7%/12))*(1+7.7%/12)

(408729/(1+7.7%/12)) = (P*(1-1/(1+7.7%/12)^33)/(7.7%/12))

406123 = P*29.65488

P = $13694.98 or $13695

**So, the monthly payment will be $13695.**

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