Question

Melissa is a very successful clothes designer who is currently selling clothes on the internet. She...

Melissa is a very successful clothes designer who is currently selling clothes on the internet. She wants to expand her business and needs a loan to buy sewing machines, fabric and other material, and hire two seamstresses to help her with the sewing. The bank offers her a loan of $400,000 to be paid over 4 years (starting next month) with monthly payments at 6% APR with quarterly compounding. However, Melissa wishes to pay off her debt more quickly and decides to pay each month twice the amount required by the bank. Approximately how many months will it take Melissa to pay off her loan? Hint: You need to first find the monthly payments required by the bank.

Homework Answers

Answer #1

The actual Loan amount was = 400,000

APR rate 6% compounded quarterly

So EIR effective rate = (1+i/m)^m -1 = EIR = 6.136% pa

The original monthly payments

Monthly payment = P*(i/m)   / ( 1- (1+i/m) –mt

Where p = principal, I = interest rate, M= no of compounding, T = time.

So Monthly payment = 400000 * (0.06136/12) / 1-(1+ 0.06136/12 )^-48

=9418.98 is the original monthly payments

Now she wants to pay twice the regular payments =

New payment = 2*9418.98 = 18,837.95

Monthly payment = P*(i/m)   / ( 1- (1+i/m) –mt

18,837.95= 400000 * (0.06136/12) / 1-(1+ 0.06136/12 )^-t

= 22.6 months

Time = 22.6 months

PLS UPVOTE MY ANSWER



Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On September 1, 2013, Susan Chao bought a motorcycle for $21,000. She paid $1,100 down and...
On September 1, 2013, Susan Chao bought a motorcycle for $21,000. She paid $1,100 down and financed the balance with a five-year loan at an APR of 6.3 percent, compounded monthly. She started the monthly payments exactly one month after the purchase (i.e., October 1, 2013). Two years later, at the end of October 2015, Susan got a new job and decided to pay off the loan.    If the bank charges her a 2 percent prepayment penalty based on...
On September 1, 2014, Susan Chao bought a motorcycle for $21,000. She paid $1,100 down and...
On September 1, 2014, Susan Chao bought a motorcycle for $21,000. She paid $1,100 down and financed the balance with a five-year loan at an APR of 6.3 percent compounded monthly. She started the monthly payments exactly one month after the purchase (i.e., October 1, 2014). Two years later, at the end of October 2016, Susan got a new job and decided to pay off the loan.    If the bank charges her a 2 percent prepayment penalty based on...
Oliver Queen's sister, Thea, wants to buy a home in Charlottesville, Virginia that is currently selling...
Oliver Queen's sister, Thea, wants to buy a home in Charlottesville, Virginia that is currently selling for $250,000, and she wants to determine if she can afford it. A bank offers her a 30 year loan, with monthly payments based on an 8.25% interest rate compounded monthly. She is required to pay 10% down. Answer the following questions. 1.​What are her monthly payments? 2.​Can she afford it? 3.​Is that all she will have to pay each month? 4.​What additional costs...
Oliver Queen's sister, Thea, wants to buy a home in Charlottesville, Virginia that is currently selling...
Oliver Queen's sister, Thea, wants to buy a home in Charlottesville, Virginia that is currently selling for $250,000, and she wants to determine if she can afford it. A bank offers her a 30 year loan, with monthly payments based on an 8.25% interest rate compounded monthly. She is required to pay 10% down. Answer the following questions. 1.​What are her monthly payments? 2.​Can she afford it? 3.​Is that all she will have to pay each month? 4.​What additional costs...
1. John invested $20,000 fifteen years ago with an insurance company that has paid him 8...
1. John invested $20,000 fifteen years ago with an insurance company that has paid him 8 percent (APR), compounded quarterly (every 3 months). How much interest did John earn over the 15 years? a. $2,416.08 b. $45,620.62 c. $24,000.00 d. $28,318.95 e. $65,620.62 2. You are running short of cash and really need to pay your tuition. A friend suggests that you check out the local title pawn shop. At the shop they offer to loan you $5,000 if you...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
What tools could AA leaders have used to increase their awareness of internal and external issues?...
What tools could AA leaders have used to increase their awareness of internal and external issues? ???ALASKA AIRLINES: NAVIGATING CHANGE In the autumn of 2007, Alaska Airlines executives adjourned at the end of a long and stressful day in the midst of a multi-day strategic planning session. Most headed outside to relax, unwind and enjoy a bonfire on the shore of Semiahmoo Spit, outside the meeting venue in Blaine, a seaport town in northwest Washington state. Meanwhile, several members of...