An entrepreneur bought a used heavy equipment for Rp. 96,000,000 on January 1, 2003. The entrepreneur paid a down payment of 1/4 of the price of the heavy equipment and the rest was paid in 48 monthly installments with the following conditions: · The installment amount is always the same or uniform · The first installment is paid a month after the advance payment · The interest rate is set at 14% per year which is arranged monthly. Questions: 1. How many installments must be paid each month? 2. What is the effective interest rate? 3. If the entrepreneur wants the heavy equipment to be paid in full on September 1, 2004, how many monthly installments must he pay?
An entrepreneur bought a used heavy equipment for Rp. 96,000,000 on January 1, 2003. The entrepreneur paid a down payment of 1/4 of the price of the heavy equipment and the rest was paid in 48 monthly installments with the following conditions: · The installment amount is always the same or uniform · The first installment is paid a month after the advance payment · The interest rate is set at 14% per year which is arranged monthly. Questions: 1. How many installments must be paid each month? 2. What is the effective interest rate? 3. If the entrepreneur wants the heavy equipment to be paid in full on September 1, 2004, how many monthly installments must he pay?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
An entrepreneur bought a used heavy equipment for Rp. 96,000,000 on January 1, 2003. The entrepreneur paid a down payment of 1/4 of the price of the heavy equipment and the rest was paid in 48 monthly installments with the following conditions:
· The installment amount is always the same or uniform
· The first installment is paid a month after the advance payment
· The interest rate is set at 14% per year which is arranged monthly.
Questions:
1. How many installments must be paid each month?
2. What is the effective interest rate?
3. If the entrepreneur wants the heavy equipment to be paid in full on September 1, 2004, how many monthly installments must he pay?
Expert Solution
Step 1 : loan payment calculation
Loan payment is calculated using Present value of annuity formula which is given as follows
PV = E(1-(1+r)-p)/r
Where
E = monthly payments =?
r = monthly rate = 14%/12 = 1.166%
P = monthly instalments = 48
PV = loan amount = cash price - down payment = 96000000 * (1- 1/4) = 72000000
Therefore,
72000000 = E(1-1.01167-48)/0.01167
72000000 = E * 36.5919
E = $1967651 per month
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