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Accounting: Monthly Interest Rates

Love Canal General Hospital wants to purchase a new blood analyzing device today. Its local bank is willing to lend it the money to buy the analyzer at a 3 percent monthly rate. The loan payments will start at the end of the month and will be $1,600 per month for the next eighteen months. What is the purchases price of the device?

Dr. Thomas plans to retire today and would like an income of $ 400,000 per year for the next fifteen years with the income payments starting one year from today. He will be able to earn interest of 8 percent per year compounded annually from his investment account. What must he deposit today in his investment account to achieve this income of $ 400,000 per year?

Carondelet Hospital is evaluating a lease arrangement for its ambulance fleet. The total value of the lease is $420,000. The hospital will be making equal monthly payments starting today.

Questions:
a. What is the monthly interest rate if the lease payments are $24,000 per month for twenty-four months?
b. What is the monthly interest rate if the lease payments are $24,000 per month for thirty-six months?
c. What is the monthly interest rate if the lease payments are $30,000 per month for for thirty-six months?

Solution Summary

This solution illustrates how to use Excel functions to find the purchase price of an asset based on its monthly payments, the annual amount a person will have if they draw down a deposit over several years, and the interest rate implicit in a lease.

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