A consumer purchased a new furniture by borrowing 1500 using

A consumer purchased a new furniture by borrowing $1,500 using the store’s credit plan, which charges 12% compounded monthly. What are the monthly payments if the loan is to be repaid in 4 years?

Solution

Here, the monthly interest is 0.12/12 = 0.01.

In annuity immediates,

Present value = C (1 - v^n)/i

where

v = 1/(1+i) = 1/(1+0.01) = 0.99009901

Thus,

Present value = C (1 - v^n)/i

As n = 12*4 = 48 payments,

1500 = C(1 - 0.99009901^48)/0.01

1500 = C(37.97395949)

C = $39.50075315 [ANSWER]