Question

A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $3,000 per month for the next three years and then $2,000 per month for two years after that. If the bank is charging customers 9.75 percent APR, how much would it be willing to lend the business owner? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

Answer 1

Computation of the amount that a bank willing to lend the business owner.We have,

Annual percentage interest rate = 9.75%

Monthly percentage interest rate (r) = 9.75/12 = 0.8125 %

Loan amount = Monthly payment [ 1 - (1/(1+r)ⁿ ] / r

Loan amount = 3,000 [ 1 - (1/(1.008125)³⁶ ] / 0.008125 + 2,000 [ 1 - (1/(1.008125)⁶⁰] / 0.008125

Loan amount = 3,000 x 31.10 + 2,000 x 47.33

Loan amount =  93,300+ 94,660 = $ 187,960

The amount that a bank willing to lend the business owner

$ 187,960

answered by: anonymous