Example - Monthly Payment Amount

Example - Monthly Payment Amount

Background     Normal amortization, functionally known as compound or actuarial amortization, computes interest at the end of every compound period. If a payment is received at that point, it is applied first to interest and then to principal. If not all of the interest for the compound period is paid, the unpaid interest is added to the principal and becomes part of the basis for calculating the interest due for the next compound period.

Facts     Miller Equipment Co. sells machinery to Wendland on June 11, 2025 for $27,000. They allow a trade-in of $4,000 on used equipment and take a 9% note calling for 28 equal monthly payments beginning on August 3, 2025.

Needed     The Monthly Payment Amount.

Settings     This example assumes Normal amortization (Compute Method) and a Year Length of 365 days (set in the Calculations group on the Configuration ribbon).

  1. Enter the cash flow information as shown below.

    ** SCREEN SHOT HERE **

  2. Press [F9], [Ctrl]+[U], or click Calculate from the Compute group to compute the Monthly Payment Amount.

Solution     The Monthly Payment Amount will be $918.72.