Question

A company borrows 84,700 for new equipment. The company agrees to make quarterly payments for 9 years at 10% per year. Find the amount of the quarterly payment.

Answer 1

To calculate the payment amount per period, we use the equation:

A = P [(i(1+i)^n) / ((1+i)^n -1)]

where A is the amount to be paid per period
            P is the loan amount or the principal amount
            i is the interest rate
            n is the number of compounding period

The given are as follows:
P = 84700
i = 10% per year = 2.5% per quarter
n = 9 yrs = 36 quarters

Substituting the values:

A = P [(i(1+i)^n) / ((1+i)^n -1)]
A = 84700 [(.025(1+.025)^36) / ((1+.025)^36 -1)]
A = 3595.65 <--------amount to be paid per quarter