Answer:
= $212.61 per month
Explanation:
When a loan is to be paid over a period of time using a series of periodic equal installments, it is called loan amortization. Each equal installment is meant to liquidate the principal and the accrued interest.
<em>The amount to be financed by way of loan=</em>
= cost of machine - (20%× cost of machine)
= $12,500 - (20% × $12,500 )
= $10,000
The monthly equal installment is calculated as follows:
<em>Monthly equal installment-= Loan amount/Monthly annuity factor</em>
<em>Monthly annuity factor </em>
<em>=( 1-(1+r)^(-n))/r</em>
Monthly interest rate (r)
= 1%/12= 0.0833%
Number of months ( n) in 4 years
= 12* 12 = 144
Annuity factor
= ( 1- (1.000833)^(-12×4)/0.000833
= 47.033
Monthly installment = $10,000/47.03
= $212.61 per month