Question

Question 2: What would be the effective rate on a personal loan in the amount of $20,000 with an annual rate of 6%? Assume it is a discounted loan and the borrower will repay the loan with one payment at the end of 12 months. Question 3: Calculate how much interest you would pay during the first 12 months if you were to borrow $10,000 at 6% to paid off in 5 years via monthly installments. This loan is compounded monthly. Based on the total amount of interest paid during the first 12 months, what is the loan effective interest rate for year 1?

please show your calculations

Answer 1

1). Effective rate of interest Particulars Amount Amount Principle $ 20,000.00 Discount $ (1,200.00) Payment to Borrower $ 18,800.00 Repayment $ 20,000.00 Interest $ 1,200.00 Effective ROI 6.38 2). Effective rate of interest Particulars Amount Amount Principle $ 10,000.00 Repayment $ 10,000.00 Interest $ 551.90 Effective ROI % 5.52 Particulars Installment 1 Installment 2 Installment 3 Installment 4 Installment 5 Installment 6 Installment 7 Installment 8 Installment 9 Installment 10 Installment 11 Installment 12 W. N. 2) Loan Schedule Interest Beginning 6% on Ending Balance EMI Principle Due Balance $ 10,000.00 $ 193.33 $ 143.33 $ 50.00 $9,856.67 $ 9,856.67 $ 193.33 $ 144.05 $ 49.28 $9,712.62 $ 9,712.62 $ 193.33 $ 144.77 $ 48.56 $9,567.86 $ 9,567.86 $ 193.33 $ 145.49 $ 47.84 $9,422.37 $ 9,422.37 $ 193.33 $ 146.22 $ 47.11 $9,276.15 $ 9,276.15 $ 193.33 $ 146.95 $ 46.38 $9,129.20 $ 9,129.20 $ 193.33 $ 147.68 $ 45.65 $8,981.51 $ 8,981.51 $ 193.33 $ 148.42 $44.91 $8,833.09 $ 8,833.09 $ 193.33 $ 149.16 $44.17 $8,683.93 $ 8,683.93 $ 193.33 $ 149.91 $ 43.42 $8,534.02 $ 8,534.02 $ 193.33 $ 150.66 $ 42.67 $8,383.36 $ 8,383.36 $ 193.33 $ 151.41 $ 41.92 $8,231.94 $ 551.90

Hence

1). Effective ROI 6.38%

2). Effective ROI 5.52%