Andy needs to pay off a loan of $18,000 in 5 years. Find the amortization payment he would need to make each bi-monthly pay period (twice a month) at 6% compounded bi-monthly, in order to pay off
the loan.
i = .06/24 =.0025
n = 5(24) = 120
Let the payment be P
P( 1 - 1.0025^-120)/.0025 = 18000
I get P = $173.81
To find the amortization payment that Andy needs to make each bi-monthly pay period, we can use the formula for calculating the periodic payment on a loan, which is:
P = (r * PV) / (1 - (1 + r)^(-n))
Where:
P = Periodic payment
r = Interest rate per period
PV = Present value of the loan
n = Total number of periods
In this case, the loan amount (PV) is $18,000, the interest rate (r) is 6% compounded bi-monthly, and the loan term is 5 years. Since the payment is made twice a month, the total number of periods (n) will be 5 * 12 * 2 = 120.
First, we need to calculate the interest rate per period (r). Assuming the annual interest rate is 6%, the bi-monthly interest rate can be calculated as (1 + 0.06)^(1/6) - 1 = 0.009858.
Now, we can use the formula to calculate the periodic payment (P):
P = (0.009858 * $18,000) / (1 - (1 + 0.009858)^(-120))
Calculating this expression will give us the amortization payment that Andy needs to make each bi-monthly pay period.