Question

The three little pigs received a loan for $9000 at an effective annual interest rate of 4% from BBW Bank to make repairs on their brick house. They will repay the loan, starting one year after the loan was disbursed, by making annual payments equal to 6 times the amount of interest due until they can make a final payment of no more than $475. Determine how many payments they will make and the amount of the final payment.

(a) The three little pigs will make____________ payments.

(b) The final payment will be for $______________.

Please give correct answers!

Answer 1

a: The three little pigs will make 8 payments.

b: The final payment will be for $ 452.98

The payments are as below

Payment No	Loan outstanding	Interest	Payment made	Principal repaid
1	9000.00	360.00	2160.00	1800.00
2	7200.00	288.00	1728.00	1440.00
3	5760.00	230.40	1382.40	1152.00
4	4608.00	184.32	1105.92	921.60
5	3686.40	147.46	884.74	737.28
6	2949.12	117.96	707.79	589.82
7	2359.30	94.37	566.23	471.86
8	1887.44	75.50	452.98

WORKINGS

Loan outstanding = opening loan-principal repaid

Interest due = 4%*loan outstanding

Payment = 6*Interest due

Principal repaid = payment-interest due