Question

1. After going over her budget, a dairy farmer has determined that she can afford to pay KES 632 per month towards a milk packaging machine. She calls up her local bank and finds out that the going rate is 12% per month for 48 months. How much is she able to borrow and repay?

Answer 1

She will be able to give KES 632 / month

So the EMI = KES 632

Tenor= 48

Interest = 12%

So , we know that

EMI = Loan Amount / Discount Factor or P = A / D

Number of Periodic Payments (n) = Payments per year times number of years= 48

Periodic Interest Rate (i) = Annual rate divided by number of payment periods= 12

Discount Factor (D) = {[(1 + i) ^n] - 1} / [i(1 + i)^n]

                D= ((1+0.12)^48) -1)/ (0.12(1.12)^48)

                =229.39/27.64

                =8.297

                Loan amount= EMI*Disc. Factor

                Loan amount= 632*8.297=5243.81

Amount borrowed = $5243.81

And amount repaid= 632*48= $30336