Question

A factory buys a machine for $45000. They decide to pay 8% down and make payments of $7000 annually. If the interest rate is j₁=9%. *Do not round intermediate steps*

a) How many full annual payments of $7000 will the factory make?

b) Determine the size of the concluding payment if the final payment is a 'drop' payment.

Answer 1

1.

8 full annual payments of 7000

2.

5769.13 will be the concluding payment

Payment	Loan beginning balance	Payment	Interest payment	Principal payment	Loan ending balance
1	41400	$7,000.00	$3,726.00	$3,274.00	$38,126.00
2	$38,126.00	$7,000.00	$3,431.34	$3,568.66	$34,557.34
3	$34,557.34	$7,000.00	$3,110.16	$3,889.84	$30,667.50
4	$30,667.50	$7,000.00	$2,760.08	$4,239.92	$26,427.58
5	$26,427.58	$7,000.00	$2,378.48	$4,621.52	$21,806.06
6	$21,806.06	$7,000.00	$1,962.55	$5,037.45	$16,768.60
7	$16,768.60	$7,000.00	$1,509.17	$5,490.83	$11,277.78
8	$11,277.78	$7,000.00	$1,015.00	$5,985.00	$5,292.78
9	$5,292.78	$5,769.13	$476.35	$5,292.78	$0.00