Question

A $10000 loan has an interest rate of 12% per year, compounded monthly, and 30 equal monthly payments are required.

a) If payments begin at the end of the first month, what is the value of each payment?

b) How much interest is in the 10th payment?

c) What would you enter into Excel to solve part b?

d) What is the unpaid balance immediately after the 10th payment?

e) If the 30 loan payments are deferred and begin at the end of month 6, how much interest is in the first payment?

Answer 1

Loan = $10000, interest rate = 12% per year, compounded monthly, (monthly rate = 1%) and number of monthly payments = 30

a) If payments begin at the end of the first month, what is the value of each payment?

A = 10000(A/P, 1%, 30) = 10000*0.038748 = $387.48

b) How much interest is in the 10th payment?

Interest in 10th payment = 387.48(P/A, 1%, 30 - 10 + 1)i% = 387.38*18.856983*1% = 73.05

c) What would you enter into Excel to solve part b?

= PV(1%,21,-387.48)*0.01

d) What is the unpaid balance immediately after the 10th payment?

Balance = A(P/A, i%, N – n) = 387.48*(P/A, 1%, 30 - 10) = 387.48*18.04555 = $6992.29