Aggie Company is going to trade-in an old piece of equipment for new equipment.

The following is information concerning the purchase:

List Price: $65,000
Down Payment: $6,000
Term: 5 years Interest Rate: 8%
Payments: Quarterly
Trade-in value $10,000

Determine the amount of the quarterly payment. Select one:

a. 6,595
b. 12,271
c. 2,997
d. 3,608
e. 10,397

Option C,$2,997 is the correct answer.

Explanation:

The amount to be paid  in quarterly installments over a 5 year period is the list price less the down payment and the trade-in value of $10,000 as shown below.

list price                $65,000

down-payment    ($6,000)

trade-in-value      ($10,000)

balance                $49,000

The quarterly installment can be computed using the pmt formula in excel as follows:

=pmt(rate,nper,-pv,fv)

rate is the quarterly interest rate of 8%/4=2%

nper is the number of quarterly installments which is 4*5=20

pv is the present value of the amount to be paid in installments which is $49000

fv is the future value ,it is not unknown,hence it is zero

=pmt(2%,20,-49,000,0)

=$2,996.68  

approx.$$2,997

answer; buyer guide;