Question

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 the loan balance, how much must she pay the bank on November 1, 2015? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Answer 1

Solution :-

Amount of Loan = $21,000

Amount Financed = $21,000 - $1,100 = $19,900

Interest rate per month = 6.3% / 12 = 0.525%

Total Monthly Payments = 5 * 12 = 60

Monthly Installment = $19,900 / PVAF ( 0.525% , 60 )

= $19,900 / 51.3542

= $387.501

Now after Oct 2015 ,

Payments Remaining = 35

Amount Outstanding on 1 Nov 2015 =

= $387.501 * PVAF ( 0.525% , 35 )

= $387.501 * 31.8964

= $12,539.89

Now Amount Paid on 1 Nov 2015 with 2% Prepayment Penalty =

= $12,539.89 * ( 1 + 0.02 )

= $12,790.69

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