Question

ABC. Corp. purchased new equipment by making a down payment of $1,500 and payments of $265 at the end of each month for four years. Interest is 9.0% compounded quarterly.

a. What was the purchase price of the new equipment? ___________

b. How much interest will be paid?

Answer 1

Equal Monthly Payment amount = A*((1+(r/m))^(m/p) - 1) / (1 - (1+(r/m))^(-mn))

Where,

Equal Payment Amount = 265

n = 4 years

r = 9%

p = 12 (monthly payment)

m = 4 (compounded quarterly)

265 = A*((1+(9%/4))^(4/12) - 1) / (1 - (1+(9%/4))^(-4*4))

265 = A*0.02483

A = 265/0.024853

A = 10662.70

Amortized Value = 10662.70

Purchase Price = Down Payment+ Amortized Value

Purchase Price = 1500+10662.70

Purchase Price = 12162.70

Total Interest Paid = Total repayment - Purchase Price

Total Interest paid = 1500 + 265*12*4 - 12162.70

Total Interest Paid = 2057.30