A pottery factory purchases a continuous belt conveyor kiln for $50,000. A 6.5% APR loan with monthly payments is taken out to purchase the kiln. If the monthly payments are $501, over what term is this loan being paid?

Question

Quizplus · Accepted Answer

Using the formula for monthly payment of a loan:

P = (r(PV))/(1 - (1+r)^(-n))

Where P is the monthly payment, r is the monthly interest rate (in decimal form), PV is the present value of the loan, and n is the number of payments.

Plugging in the given values, we get:

501 = (0.065/12)(50,000)/(1 - (1+0.065/12)^(-n))

Solving for n using a financial calculator or spreadsheet software, we get n ≈ 144.

Therefore, the loan is being paid over 144/12 = 12 years.

So, the best choice is B.

A Pottery Factory Purchases a Continuous Belt Conveyor Kiln for $50,000