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February 26, 2015

February 26, 2015

Posted by **Mary** on Friday, November 15, 2013 at 12:10pm.

An online store that has been successfully growing on its initial angel investment and revenues wants to invest $5 million to expand the business. The bank is willing to lend the business this money at a 10 percent interest rate over an eight-year term. Calculate the monthly payment, and explain what the business must be able to do with this money in order for this to be a smart business decision.

- Math:Calculating Investment -
**Kuai**, Friday, November 15, 2013 at 12:27pmP(1+ r/n)^nt

t = 8

Monthly n = 12

rate = 10%

- Math:Calculating Investment -
**Mary**, Friday, November 15, 2013 at 12:31pmthank you so much!

- Math:Calculating Investment -
**Steve**, Friday, November 15, 2013 at 12:39pmThe above formula gives the amount of compounded (monthly) interest earned over an 8-year period, but does not provide the payment needed to amortize the loan.

That formula for monthly payment m is

m = Pr/(1 - (1+r)^-n)

In this case, we have

m = 5000000(.10/12)/(1 - (1+.10/12)^(-12*8))

= 75,870.82

- Math:Calculating Investment -
**Mary**, Friday, November 15, 2013 at 12:42pmthank you! ,Steve

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