Question

What is the initial balance of a loan that can be paid off in one year with payments of $7.94 every 4 weeks at 6% interest?

Answer 1

CALCULATION OF PRINCIPAL AMOUNT OF LOAN-

Given-

Interest Rate (R) = 6% per 52 weeks or 0.46% per 4 weeks ,

EMI = $7.94,

Number of periods = (Total weeks in a year ÷ 4 weeks)

Number of periods (N) = (52 weeks÷ 4 weeks) =13 periods

Now, Principal Amount = EMI * PVAF (0.46%, 13 periods)

Principal Amount = $7.94 * 12.59

Principal Amount = $99.97 or $100 (approximately)

Thus, initial balance of the loan is $100.

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