Question

Dan borrows $1500.00 with 8% simple interest and repays this loan with a payment of $500.00 after 3 months, $500.00 after 7 months then a final payment at the end of one year to settle the debt. Find the size of Dan’s payment after one year using U.S. Rule.

Answer 1

Total Borrowings = Present value of all payments

$15,000 = $500 * PVF(0.667%p.m, 3months) +$500 PVF(0.667%p.m, 7months) + balance

Balance = $15,000 - $500*0.9803 - $500*0.9545

Balance = $15,000 - $490.13 - $477.27

                = $14,032.61

Present value of payment after 1 year   = $14,032.61

Paid amount * PVF(8%,1year)    = $14,032.61

After 1 year paid amount     = $14,032.61 / 0.9259

                                          = $15,155.22

answered by: anonymous