Question

The manager of a manufacturing company knows that they will need a new machine in one of their factories. The new machine will cost them $13,700. The manager has determined that they can afford to pay 10% of the cost of the machine in cash. They can then finance the rest through a credit union. The credit union will charge 2% per year compounded monthly. How much are their monthly payments for 3 years?
a) $442.06
b) $392.40
c) $369.57
d) $332.61
e) $353.16

Answer 1

P = Po(1+r)^n.

Po = 0.9 * 13,700 =
r = 0.0212mo., = 0.001667/mo.
n = 12Comp./yr. * 3yrs. = 36 Compounding periods.

P/36 = Monthly payments.

Answer 2

Correction: r = 0.02/12 = 0.001667/mo.