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Problem #5: A loan of $44,000 is paid off in 36 payments at the end of...

Problem #5: A loan of $44,000 is paid off in 36 payments at the end of each month in the following way: Payments of $1100 are made at the end of the month for the first 12 months. Payments of $1100 + x are made at the end of the month for the second 12 months. Payments of $1100 + 2x are made at the end of the month for the last 12 months. What should x be if the nominal monthly rate is 12.4%?

Solutions

Expert Solution

Interest in any month = principal outstanding at beginning of month * 12.4% / 12

Principal portion of monthly payment = monthly payment minus interest portion of payment

principal outstanding at end of month = principal outstanding at beginning of month minus principal portion of monthly payment

First, we assume X to be $200 and calculate the principal outstanding at the end of 36 months.

Now, we use GoalSeek in Excel to find the value of X such that the principal outstanding at the end of 36 months is zero

X is calculated to be $402.90

jeff jeffy answered 5 hours ago
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