You are seeking to buy a brand new truck for a health care facility at the list

ID: 2790537 • Letter: Y

Question

You are seeking to buy a brand new truck for a health care facility at the list price of $50,000. To obtain a loan the lender

requires a down payment of 10% and an interest rate of 8% with the borrowed amount the be repaid at the end of

each quarterly period in equal amounts comprising principal and interest. Assuming the loan amount is amortized

over a 5-year period then, rounding to the closes dollar, your quarterly repayment amount is closest to:

a. $2,752

b. $5,635

c. $5,800

d. $2,500

e. None of the above

a. $2,752

b. $5,635

c. $5,800

d. $2,500

e. None of the above

a. $2,752

b. $5,635

c. $5,800

d. $2,500

e. None of the above

The same EMI formula can be used for computation of quarterly installment as:

EQI = P × r × (1 + r)n /{(1 + r)n - 1 }

EQI= Equal Quarterly Installment

P = Principal = Price – Down payment

= $ 50,000 – (10% x 50,000) = $ 50,000 - $ 5,000 = $ 45,000

r = rate of interest = 8 % p.a. or 0.08/4 = 0.02 quarterly

n = 5 years x 4 quarters = 20 periods

EQI= $ 45,000 x 0.02 x (1 + 0.02)20 / {(1 + 0.02)20 -1}

= $ 45,000 x 0.02 x (1.01)20 / {(1.02)20 -1}

= $ 45,000 x 0.02 x 1.4859474/ (1.4859474-1)

= $ 45,000 x 0.02 x (1.4859474/ 0.4859474)

= $ 45,000 x 0.02 x 3.05783591

= $ 2,752.05232 or $ 2,752.05

Hence option “a. $ 2,752” is correct answer.

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