Question

A consumer purchased new furniture by borrowing 8981 using the store’s credit plan which charges 9% compounded monthly. If the loan is to be repaid as a uniform series of monthly payments over 5 years , how much does the consumer still owe just after making the 20th payment?

Answer 1

To understand what will be the amount of uniform series of monthly payment , we will first understand what will be the final amount that has to be paid if the a 9% interest is charged on the principal amount of 8981 which is compounded annually for 5 years .

Amount = P (1+r/n)nt

Where ,

P = 8981

r = 9% or 0.09

n = 12 ( Monthly compounding)

t = 5

Amount = (1+0.09/12)(12*5)

= 8981(1.0075)(60)

= 8981*1.5657

=14061.5517

Or 14062

Now 5 years is equal to (5*12)=60 months .

So uniform Annual payments = 14062/60=234.367

Now repayed amount after 20th payment = 234.367*20

=4687.4

Amount left after 20th repayment = 14062-4687.4

=9374.6