Question

The CEO demanded a corporate jet for his personal use. The corporation is borrowing $15,000,000 to buy the jet. The terms of the loan call for monthly payments for 20 years at a 6 percent annualized interest rate. What is the amount of each payment to pay off the loan?

Answer 1

Given,

Loan amount = $15000000

Interest rate = 6% or 0.06

Number of years = 20 years

Solution :-

Monthly interest rate (r) = 0.06/12 = 0.005

Number of months (n) = 20 years x 12 = 240 months

Now,

Monthly payment = (Loan amount x r) [1 - (1 + r)^-n]

= ($15000000 x 0.005) [1 - (1 + 0.005)^-240]

= $75000 [1 - (1.005)^-240]

= $75000 [1 - 0.30209614158536]

= $75000 0.69790385841464 = $107464.66