Question

An industrial bank will loan you $10,500 for two years to buy miscellaneous equipment for your firm. The loan must be repaid in equal monthly payments. The annual interest rate on the loan is 9.5% of the unpaid balance. How large are the monthly payments?

Answer 1

Monthly Loan Payment

Loan Amount (P) = $10,500

Monthly Interest Rate (n) = 0.791667% per month[9.50% / 12 Months)

Number of Months (n) = 24 Months (2 Years x 12 Months)

Monthly Mortgage Payment = [P x {r (1+r)ⁿ} ] / [( 1+r)ⁿ – 1]

= [$10,500 x {0.00791667 x (1 + 0.00791667)²⁴}] / [(1 + 0.00791667)²⁴ – 1]

= [$10,500 x {0.00791667 x 1.20834}] / [1.20834 – 1]

= [$10,500 x 0.009566] / 0.20834

= $482.10 per month

“Thus, the Monthly Loan Payment would be = $482.10 per month”