Question

An item costs $9100. It can be purchased by making monthly payments for 2 years with the first payment made immediately. If the interest charged is 15% compounded monthly, find the size of the monthly payments rounded up to the next cent.

Answer 1

Information provided:

Present value=  $9,100

Time= 2 years*12= 24 months

Monthly interest rate= 15%/12= 1.25%

The question is concerning finding the amount of an annuity due. Annuity due refers to annuity that occurs at the beginning of a period.

This can also be solved using a financial calculator by inputting the below into the calculator in BGN mode:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^ndBGN 2^ndSET on the Texas BA II Plus calculator.

The monthly payment is calculated by entering the below in a financial calculator:

PV= -9,100

N= 24

I/Y= 1.25

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 435.78.

Therefore, the amount of monthly payment is $435.78.