Question

Martin borrowed $12795 to buy furniture for his apartment. He took out a loan with repayments made at the end of each month and at an interest rate of 8.5%p.a. compounded monthly over a period of five years. After three and a half years he sold the furniture and repaid the loan in full because he was moving overseas. How much did he need to repay?

(Give your answer to the nearest cent, omitting the dollar sign.)

Answer 1

1)	Using the formula for loan amortization, the monthly
	installments for the loan would be:
	=12795*((0.085/12)*(1+0.085/12)^60))/((1+0.085/12)^60-1)) =	$            262.51
2)	The amount paid at the end of three and a half years is the
	PV of the outstasnding installments (18 months), which is
	= 262.51*((1+0.085/12)^18-1))/((0.085/12)*(1+0.085/12)^18)) =	$        4,421.69