david kapamagian borrow David Kapamagian borrowed money from a hank to finance a
ID: 2652478 • Letter: D
Question
david kapamagian borrow David Kapamagian borrowed money from a hank to finance a small fishing boat. The bank's terms allowed him to defer payments (including interest) on the loan for six months and to make 36 equal end-of-month payments thereafter. The original bank loan was for $4800, with an interest rate of 12% compounded monthly. After 16 monthly payments, David found himself in a financial bind and went to a loan company for assistance in lowering his monthly payments. Fortunately, the loan company offered to pay his debts in one lump sum if he would pay the company $104 per month for the next 36 months. What monthly rate of interest is the loan company charging on this transaction?Explanation / Answer
WN (‘1) Calculation of Equal Monthly Instalment on Original loan
P = $ 4800
‘i= 1 % per month
‘n = 36 Month
A= ‘i x (1+’i)n/ [(i+i)n -1]
By putting value in the above formula and by multiplying by P we get monthly instalment as under
Monthly instalment= 0.01 (1.01)36 / [ (1.01)36 -1]
Monthly instalment= 4800 x 0.033
Monthly instalment= $159.43
WN-(2) Calculation of loan amoritsation table for 16 Instalment
Period
Principal
Interest
Instalment
Principal Paid
Outstanding Principal
1
4800.00
48.00
159.43
111.43
4688.57
2
4688.57
46.89
159.43
112.54
4576.03
3
4576.03
45.76
159.43
113.67
4462.36
4
4462.36
44.62
159.43
114.81
4347.55
5
4347.55
43.48
159.43
115.95
4231.60
6
4231.60
42.32
159.43
117.11
4114.48
7
4114.48
41.14
159.43
118.29
3996.20
8
3996.20
39.96
159.43
119.47
3876.73
9
3876.73
38.77
159.43
120.66
3576.07
10
3756.07
37.56
159.43
121.87
3634.20
11
3634.20
36.34
159.43
123.09
3511.11
12
3511.11
35.11
159.43
124.32
3386.79
13
3386.79
33.87
159.43
125.56
3261.23
14
3261.23
32.61
159.43
126.82
3134.41
15
3134.41
31.34
159.43
128.09
3006.32
16
3006.32
30.06
159.43
129.37
2876.96
After the payment of 16 instalments principal balance is $ 2876.96
We know that from P (loan amount ) we will find out annual instalment by this formula
P= A x (1+i)n -1 ]/ i x (1+i)n
2876.96 = 104 x PVAF
PVAF= 27.663
By observing the table of PVAF
We get the interest rate= 18 %
Interest rate charged in the transaction = 18 %
Period
Principal
Interest
Instalment
Principal Paid
Outstanding Principal
1
4800.00
48.00
159.43
111.43
4688.57
2
4688.57
46.89
159.43
112.54
4576.03
3
4576.03
45.76
159.43
113.67
4462.36
4
4462.36
44.62
159.43
114.81
4347.55
5
4347.55
43.48
159.43
115.95
4231.60
6
4231.60
42.32
159.43
117.11
4114.48
7
4114.48
41.14
159.43
118.29
3996.20
8
3996.20
39.96
159.43
119.47
3876.73
9
3876.73
38.77
159.43
120.66
3576.07
10
3756.07
37.56
159.43
121.87
3634.20
11
3634.20
36.34
159.43
123.09
3511.11
12
3511.11
35.11
159.43
124.32
3386.79
13
3386.79
33.87
159.43
125.56
3261.23
14
3261.23
32.61
159.43
126.82
3134.41
15
3134.41
31.34
159.43
128.09
3006.32
16
3006.32
30.06
159.43
129.37
2876.96
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.