Question

Edwina Incze borrowed $5,000 to pay the tuition fees that keep Professor Robinson living in luxury. ? The interest rate is 3% p.a., compounded monthly and the term of the loan is three years. How much does she still owe after the first year of payments?

Answer 1

Sol:

Borrowed amount (PV) = $5,000

Interest rate = 3% per annum, compounded monthly = 3% / 12 = 0.25%

Loan period (NPER) = 3 years, Monthly = 3 * 12 = 36

To determine how much does she still owe after the first year of payments, we first have to use PMT function in excel to get monthly payment, then PV function for loan balance.

PV	-5,000
NPER	36
Interest rate	0.25%
Monthly payment	$145.41
NPER	24
Present value	$3,383.01

Therefore amount she still owe after the first year of payments will be $3,383.01

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