Question

On January 15, business man ronald rump takes out a $650,000 loan at 5.5% annual interest. the maturity date is oct1.

1. how much will ronald rump pay on oct1?

2 suppose instead of paying off the entire loan on october 1 he decides to pay$100,000 on may 1 and 150,000 on aug 1

a how much did he pay on may1?

b how much of the $100,000 went to the principal

c what is the new principal

d how much interest was paid on aug 1

Answer 1

Requirement 1

Principal = $650,000

Interest = 5.5% per annum

Days till maturity = January 15 - Septemeber 30 = 257 days

Interest on maturity = $650,000 x 5.5% x (257 days /365 days) = $25,172

Amount payable = Principal + Interest = $650,000 + $25,172 = $675,172

Requirement 2

a.

Since $100,000 is paid on May 1st, interest will accrue till then. First interest is settled and balance is alloted to principal.

Days till May 1st = January 15 - April 30 = 105 days

Interest accrued till May 1 = $650,000 x 5.5% x (105 days /365 days) = $10,284

So RR will pay $10,284 towards interest on May 1

b.

Balance is allocated to principle.

Balance = $100,000 - $10,284= $89,716

c.

New principal = Old principal - Balance alloted to principle on May 1st = $650,000 - $89,716 = $560,284

d.

Since $150,000 is paid on Aug 1st, interest will accrue till then. First interest is settled and balance is alloted to principal.

Days till Aug 1st = May 1 - Jul 31 = 92days

Interest accrued till Aug 1 = $560,284 x 5.5% x (92days /365 days) = $7,767

So RR will pay $7,767 towards interest on Aug 1