The

1.
If you borrow $4000 from an online lending company to buy a PC and agree to pay it in
48 equal installments at 0.9% interest per month on the unpaid balance, how much are
your monthly payments? (ans= $102.99)
It is a problem of annuity. We know the present value as PVoa = 4000. Now we want to
find out the payment of each moth PMT given the interest rate is 0.9% monthly for 48
months.
The formula of present value of an annuity is:
PVoa = PMT [(1 - (1 / (1 + i)n)) / i]
PVoa = Present Value of an Ordinary Annuity
PMT = Amount of each payment
i = Discount Rate Per Period
n = Number of Periods
Substituting the values to the above equation,
1
1
48
1 0.9%

4000 PMT
0.9%
PMT 102.99
So the monthly payment is $102.99.
And how much total interest will be paid. (ans= $943.52)
The total payment is then $102.99 * 48 = $4943.52.
So the interest will be paid:
$4953.52 - $4000 = $943.52.
2.
A business borrows $80,000 at 9.42% interest compounded monthly for 8 years.
It is still a problem of present value of an annuity is given to find out the monthly
payment.
a.) what is the monthly payment?
9.42%
0.785%
The interest rate per month is i
12
The total periods are: n 8 *12 96 months.
So
1
1
96
1 0.785%

80000 PMT
0.785%
PMT 1189.52

The monthly payment is $1189.52.

b. what is the unpaid balance at the end of the first year
The future value of all the payments over the first year (12 months) is
FVoa = PMT [((1 + i)n - 1) / i]
12
1 i n 1
1 0.785% 1

1189.52
FV payments PMT
14906.96

i
0.785%

The future value of the original loan amount in 12 months is

n
12
FVloan PV 1 i 80000 1 0.785% 87870.03
The remaining balance on the loan at the end of the first year is equal to the future value
of the loan less the future value of the payments:
Balance FVloan FV payments 87870.03 14906.96 72963.07
c.) how much interest was paid during the first year?
Here we can construct an amortization table in Excel to find out the interest
The monthly interest paid = Beginning balance * Interest Rate
For example, the interest rate for the first month is
Interest =$80000 * 0.785% = $628.00.
The ending balance = Beginning balance Payment + Interest
For example, the ending balance of the this month is
Balance at the end of the first month = 80000 1189.52 + 628 = $79438.48
It is also the beginning balance of the next month.
After calculated all the monthly interests for the first 12 month period, add the interests
together.
The interest paid is then $7237.33. (the last digit is due to the rounding error).
ANSWERS
a.) 1189.52,
b.) 72963.07
c.) 7237.31