Question

Paul takes a loan of $225,000 from the bank at 7% interest rate per year over a 10-year period. He plans to pay off the loan in 10 yearly payments of $16,000 each, and with the money that he is going to inherit from his grand parents. How much should he inherit to pay off the entire loan if the grand parents give him the money at the end of the 4th year and he hands over the entire amount to the bank on the day he receives it?

Answer 1

Year 0	$225,000
Interest rate	7%
Repayment	$ 16000/year in 10 years + Money inherited from grandparents
			(Amount in $)
Year	Year beginning	Interest @ 7% for one year	Loan + Interest	Repayment	Yead end balance
1	225,000	15,750	240,750	16,000	224,750
2	224,750	15,733	240,483	16,000	224,483
3	224,483	15,714	240,196	16,000	224,196
4	224,196	15,694	239,890	16,000	223,890
5	223,890	15,672	239,562	16,000	223,562
6	223,562	15,649	239,212	16,000	223,212
7	223,212	15,625	238,836	16,000	222,836
8	222,836	15,599	238,435	16,000	222,435
9	222,435	15,570	238,006	16,000	222,006
10	222,006	15,540	237,546	16,000	221,546
The year-end balance shown in the table corresponding to each year is the amount required to close the loan at the end of respective year
So Paul should inherit from his grandparents $ 223,890 to pay off the entire loan at the end of 4th year