Question

) Tom plans to borrow $10,000 from the bank using a four-year loan, payable monthly at 4% APR. What will be the Tom’s monthly payments? (5 pts) After making the loan’s monthly installment payments for12 months, what will be the outstanding balance?

Answer 1

Amount borrowed = $10,000

Annual Interest Rate = 4.00%
Monthly Interest Rate = 0.333%

Period = 4 years or 48 months

Monthly Payment * PVIFA(0.333%, 48) = $10,000
Monthly Payment * (1 - (1/1.00333)^48) / 0.00333 = $10,000
Monthly Payment * 44.29235 = $10,000
Monthly Payment = $225.77

After 12 months:

Outstanding Balance = $225.77 * PVIFA(0.333%, 36)
Outstanding Balance = $225.77 * (1 - (1/1.00333)^36) / 0.00333
Outstanding Balance = $225.77 * 33.87281
Outstanding Balance = $7,647.46