A company borrows $125 000 from a bank at 7.2% per annum to be amortised over six years.The monthly instalment is:
A) $1861.11
B) $2143.15
C) $7274.21
D) $26 386.61

Question

Quizplus · Accepted Answer

To find the monthly instalment, we need to use the formula for amortization:

M = P * r * (1 + r)^n / [(1 + r)^n - 1]

where

M = monthly payment
P = borrowed amount ($125 000)
r = monthly interest rate (7.2% / 12 = 0.6%)
n = total number of payments (6 years * 12 months/year = 72)

Plugging in the values, we get:

M = 125000 * 0.006 * (1 + 0.006)^72 / [(1 + 0.006)^72 - 1]
M = $2143.15

Therefore, the monthly installment is $2143.15, which is option (B).

A Company Borrows $125 000 from a Bank at 7