13. Go Tutorial Aerotron Electronics has just bought a used delivery truck for $
ID: 2618164 • Letter: 1
Question
13. Go Tutorial Aerotron Electronics has just bought a used delivery truck for $15,000. The small business paid $1,000 down and financed the rest, with the agreement to pay nothing for the entire first year and then to pay $536.83 at the end of each month over years 2, 3, and 4. a. What nominal interest rate is Aerotron paying on the loan? b. What effective interest rate are they paying? c. How much of the 14th month's payment is interest? How much is principal? d. How much of the 18th month's payment is interest? How much is principal? e. How much of the 22nd month's payment is interest? How much is principal?Explanation / Answer
Price of Truck 15000 Less: Down payment -1000 Loan Taken 14000 Monthly payment 536.83 n 36 r ? Using the PV function in excel and by doing trial and error we get r = 13% PV(13%/12,12,,-PV(13%/12,36,-536.83)) monthly interest rate = 0.13/12 0.010833 Effective Interest Rate = (1 + r/n)^n - 1 (1+0.13/12)^12 - 1 13.80% PV of the principal payment at the end of 14th month = (536.83/(1.10833^14) Principal payment in 13th month 536.83 Balance outstanding in 14th Month (14000-536.83) 13463.17 Interest on 13463.17*0.010833 145.8465 Principal Payment in 14th Month 536.83 and interest would be 145.8465 Interest on 18th month payment is (14000-536.83-536.83-536.83-536.83-536.83)*0.010833 122.5846 Interest on 18th month = $122.58 and principal $536.83 Interest on 22nd month payment is (14000-536.83-536.83-536.83-536.83-536.83-536.83-536.83-536.83-536.83)*0.010833 99.32269 Interest on 22nd month = $99.32 and principal $536.83
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