Question

Jake borrows $35,000 to finance the expansion of his business. He promises to repay with the entire amount plus interst in exactly 5 years. The annual interest rate is 7.5%. What is the amount of Jake's monthly payments?

please solve using excel

Answer 1

Solution

Present value of annuity=Loan amount=Annuity payment*((1-(1/(1+i)^m))/i)

where

i-intrest rate per period-7.5/12=.625% per month

m-number of periods =5*12=60

Present value of annuity =Loan amount=35000

Annuity payment=Monthly payment=?

Putting values in formula

Present value of annuity=35000=Annuity payment*((1-(1/(1+.00625)^60))/.00625)

Solving we get Annuity payment(Monthly payment)=$701.33

Now Solving using excel

Values to be entered

PMT (Periodic payments)-To be calculated

nper-number of periods-60

rate-Intrest rate per period-.625%

pv-Present value-(-35000)

type-end of period payments- 0

fv-future value=0

Putting values

=PMT(0.625%,60,-35000,0,0)

Excel formula

=PMT(rate,nper,pv,fv,type)

Solving we get

PMT(monthly payment)=$701.33

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