Question

Michael wants to buy some new exercise equipment for his home gym for $363,000 financed at an annual interest rate of 15% using the add-on method. If Michael wants to pay off the loan in years, what will be his monthly payment?

Answer 1

Problem statement: Find the monthly payment

Method: The monthly payment formula is given by:

`A=P(r(1+r)^n)/((1+r)^n-1)`

where

In our case

`\begin{gathered} P=\text{ \$363,000} \\ n=5(years)*12(\frac{months}{\text{year}})=60\text{months} \\ \\ r=\frac{\text{annual rate}}{n\\u mber\text{ of times componded per year}}=\frac{15\text{ \%}}{12}=(15)/(100*12)=0.0125 \end{gathered}`

The next step will be to substitute the above values into the formula

`\begin{gathered} A=363,000*(0.0125(1+0.0125)^(60))/((1+0.0125)^(60)-1) \\ A=363,000*0.02379 \\ A=\text{ \$8635.7}4 \end{gathered}`

Therefore, Michael's monthly payment will be $8635.74