Question

Use the following information to answer the next two questions: On January 1, 2018, Jimbo Enterprises purchased new equipment for its training center. The equipment cost $220,000. Jimbo paid $25,000 down and is required to pay the rest in semiannual installments for the next 8 years. Jimbo's cost of borrowing is 4%.

Required:
a. What is the amount of the semiannual payment Jimbo will make every six months?
b. What is the total amount of interest expense Jimbo will pay over the life of the loan?

Answer 1

total loan (PV) = $220,000 - $25,000 = $195,000

n = 8 x 2 = 16

rate = 4% / 2 = 2%

FV = 0

Using a financial calculator, the payment = $14,361.77

Total amount of money paid during the 8 years = $229,788.39

Total interests paid = $229,788.39 - $195,000 = $34,788.39