Question

You borrowed $21,061.82 to finance the educational expenses for your senior year of college. You want to negotiate with the bank to defer the first loan installment until the end of year 2. (But you still desire to make five equal installments at 6% interest.) If the bank wishes to earn the same profit, what should be the new annual installment

Answer 1

The solution is as follows:

due this question using Financial Calculator We can solve this question using fir CMPO Set: Begin / End N= Number of periods. I%= Interest por period. PVe Present Value PMT= Amount of each installment FVe future Values Now, Step 1: CMPO Set: Not applicable n=2 I'%. = 6 PV: 21061.82 PMIEO FV- SOLVE 23665.06095

Now, Step I: Set: Begin 0-5 I%=6 PV = 23665.06095 PMT= SOLVE 5300.00027 FV= 0 annual ::16 the bank wishes to earn the same profit, then the new, installment should be $5300 (Younded off to two nearest decimal). Please note that, as per the question, you have requested the bank to defere the first loan installment until the end of Yeare 2. Thus, bank will charge an interest of 6% on the entise borrowed amount of $ 21,061.82. Hence, the interest will get accumulated on the full amount over 2 years

Step I shows the total outstanding amount of loan at the end of Year 2. I As per the question, you negotiated with the bank to defer the first loan installment until the end of eare 2, which means you have to pay the first installment at the beginning of Year 3 . Thus, all installments will be paid at the beginning of every yeare starting from Year 3 Yas shown in Step II).