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Tan Company purchased a large server for $42,000
Tan Company purchased a large server for $42,000. The company paid 45.00% of the value as a down-payment and received a loan for the balance at 4.75% compounded monthly. The loan has a term of 4 years and Tan Company has to make month-end payments to settle the loan.
a) What is the size of the month-end payments?
b) What was the total amount paid to settle the loan?
c) Calculate the total amount of interest paid throughout the term of the loan.
Expert Solution
a). We can calculate the monthly payments by using the following formula in excel:-
=pmt(rate,nper,-pv,fv)
Here,
Pmt = Monthly payments
Rate = 4.75%/12 = 0.3958% (monthly)
Nper = 4*12 = 48 periods (monthly)
PV = $42,000*(1-45%) = $23,100
FV = $0
Substituting the values in formula:
= pmt(0.3958%,48,-23100,0)
= $529.36
b). Computation of the total amount paid:-
Total amount paid = Monthly payments * Total number of payments
= $529.36 * 4 * 12
= $25,409.50
c). Computation of the total amount of interest paid:-
Total interest paid = Total amount paid - Loan amount
= $25,409.50 - $23,100
= $2,309.50
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