Question

3) A factory valued at $100 000.00 is purchased for a down payment of 28% and payments of $4000.00 at the end of every three months. If interest is 9% compounded monthly, calculate the size of the final payment. 3) A factory valued at $100 000.00 is purchased for a down payment of 28% and payments of $4000.00 at the end of every three months. If interest is 9% compounded monthly, calculate the size of the final payment.

Answer 1

Loan Amount = Cost (1- Downpayment) = 100000 ( 1- 0.28)= 72000

We have 9% compounded monthly, we need to convert to 3 month compounding

i.e 0.75% compounded monthly

or 3 month Compounding = (1+0.75%)^3 - 1= 2.27%

i.e 2.27 * 4 = 9.07% pa compounded quarterly

We find the number of instalment using financial calculator

PMT = -4000

PV = 72000

FV = 0

IY = 2.27

Compute N we get 23.40

Hence final size shall be a fraction of 0.4 times normal payment i.e 4000 * 0.4 = 1600