Question

A business valued at $96 000 is purchased for a down payment of 25% and payments of $4000 at the end of every three months. If interest is 9% compounded monthly,

what is the size of the final payment?
Write your answer as 2,569.43.

Answer 1

Size of final payment is $6392.43

Given that formula for compound interest is P(1+r/n
`)^(nt)`

where P is initial principal

r is interest rate

n is compound times per period

t is time in years

We find all the variables in the formula in order to get our answer.

Initial principal = 96000 less 25%= 72000

interest rate = 9%

number of compound times= 12

time in years =4.25 years (whole period is 4.5 years since number of payments to complete balance will take 54 months)

Hence principal and CI after 4 years and 3 months(the second to last payment)

72000(1+0.09/12)^12x4.25=$105,393.6

We use $105,393.6 as our principal to calculate the whole interest and principal for the period in order to find last payment

105393.6(1+0.09/12)^12x0.25=$107,786.03

interest for the final month = $107786.03-$105,393.6=$2392.43

To get our final payment, we add the principal payment of $4000 to final compounded interest =$6392.43