Question

Suppose you have borrowed money at a 12 percent annual rate, and you make monthly payments. If you have missed four consecutive monthly payments, how much should next month’s payment be to catch up

Answer 1

Solution :-

Given information ,

Annual rate = 12%

• The given condition question,If you have missed four consecutive monthly payments .

Consider payment = k

Four months of missed payment = [ [ 1 + 12% ] ^ 4 * k ] +  [ [ 1 + 12% ] ^ 3 * k ] +  [ [ 1 + 12% ] ^ 2 * k ] +  [ [ 1 + 12% ] ^ 1 * k ] + k

= [ [ 1.12 ] ^ 4 * k ] +  [ [ 1.12 ] ^ 3 * k ] + [ [ 1.12 ] ^ 2 * k ] + [ [ 1.12 ] ^ 1 * k ] + k

= 1.5735 k + 1.4049 k + 1.254 k + 1.12 k + k

= k [ 1.5735 + 1.4049 + 1.254 + 1.12 ]

= 5.3528 k

Four months of missed payment = 5.3528 k

As such, the installment sum would be 5.3528 occasions the standard regularly scheduled installment sum .