1- A loan of $12000 is to be financed to assist in buying an automobie. on the b
ID: 1101425 • Letter: 1
Question
1- A loan of $12000 is to be financed to assist in buying an automobie. on the basis of monthly compunding for 42 months , the end of the month equal payment is quoted as $445. what nominal interest rate is being charged ?
2- Bob Pearson borrowed $25,000 from a bank at an interest rate of 10% compounded monthly. The loan will be repaid in 36 equal monthly installments over 3 years. Immediately after his 20th payment Bob desires to pay the remainder of the loan in a single payment. Compute the amount he must repay. use semiannual compunding
Explanation / Answer
Late nominal interest rate be r
Principle loan amt = Sum of PV of all EMIs
=> 12000 = 445*(1/(1+r/12)^1+1/(1+r/12)^2+...+1/(1+r/12)^42)
Hence r = 27.0538% per annum
2) Let the payment be X
Principle loan amt = Sum of PV of all EMIs
=> Bob's emi was $ 806.6797
Hence, Sum of PV of all payments
= $ 806.6797 * (1/(1+10%/12)^1+1/(1+10%/12)^2+1/(1+10%/12)^3+...+1/(1+10%/12)^20) + X/(1+10%/12)^21 => X = $ 12136.90 = Answer
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