Jacky takes out a 5-year personal loan from the bank today. Jacky will make 10 equal half-yearly repayments including the principal and the interest (P&I)

Jacky takes out a 5-year personal loan from the bank today. Jacky will make 10 equal half-yearly repayments including the principal and the interest (P&I) starting in 6 months. The interest rate is 7% p.a. compounded half-yearly. Which of the following would help Jacky reduce the total repayment?

A. Make 60 equal monthly P&I repayments starting in 1 month.

B. Make a single repayment at the end of year 5.

C. Repay interest only for the first 2 years and repay P&I for the following 3 years.

D. Make 5 equal yearly P&I repayments starting in 1 year.

Solutions

Expert Solution

The right option is (A).

Explanation:

In any amortized loan repayment , the earlier the loan is repaid, the total amount repaid will be smaller and would be reduced.

Hence Option D) is incorrect as there are 5 equal payments.

Options B is incorrect as the outstanding balance is kept for 5 years without any repayment in between.

Option C is also incorrect as the principal outstanding is not reduced for the first 2 years

Answer is A. Make 60 equal monthly P&I repayments starting in 1 month.

Junaid answered 1 year ago

Next > < Previous

Related Solutions

Nikita takes out a 10-year loan. The loan is repaid by making 10 annual repayments at...

Nikita takes out a 10-year loan. The loan is repaid by making 10 annual repayments at the end of each year. The first loan repayment is equal to X, with each subsequent repayment 10.16% greater than the previous year’s repayment. The annual effective interest rate being charged on the loan is 8%. The amount of interest repaid during the first year is equal to 892.20. Calculate X. a.1100 b.1150 c.1200 d.1250 e.1300

You take out a 40 year loan with effective annual interest i = 5% and yearly...

You take out a 40 year loan with effective annual interest i = 5% and yearly payments at the end of each year being $10,000 for the first 20 years, and then $15,000 for the next 20 years. Find the outstanding balance after the fourth payment. Also find the outstanding balance after the 37th payment.

Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 5.7%...

Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 5.7% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate. Malorie will make monthly repayments over the next 10 years, the first of which is exactly one month from today. The bank calculates her current monthly repayments assuming the fixed interest rate of 5.7% will stay the same over the coming 10 years. (a) Calculate...

Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 3.6%...

Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 3.6% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate. Malorie will make monthly repayments over the next 10 years, the first of which is exactly one month from today. The bank calculates her current monthly repayments assuming the fixed interest rate of 3.6% will stay the same over the coming 10 years. (a) Calculate...

Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 3.6%...

Paul takes out a 15-year loan of 250,000 from his bank. The bank charges interest at...

Paul takes out a 15-year loan of 250,000 from his bank. The bank charges interest at 4% p.a. compounded half-yearly. During the first 10 years, Paul repays $11,000 at the end of each 6 months. After that period, Paul will repay $X at the end of each year for the remaining 5 years. Which of the following can be used to calculate $X.

(EXCEL HIGHLY REGARDED) Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest...

(EXCEL HIGHLY REGARDED) Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 3.7% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate. Malorie will make monthly repayments over the next 10 years, the first of which is exactly one month from today. The bank calculates her current monthly repayments assuming the fixed interest rate of 3.7% will stay the same over the coming 10...

5) A business takes out a 10-year loan for $250,000 at 5.3% interest compounded monthly. What...

5) A business takes out a 10-year loan for $250,000 at 5.3% interest compounded monthly. What is the formula to calculate the monthly payment and what is the resulting value? 6) For the loan conditions specified in question 5, what are the formulas to calculate how much interest the business will pay in the first year and how much the business will repay toward the principal? What are the resulting values? 7) For the loan conditions in question 5, calculate...

You take out a 40 year loan with effective annual interest i = .05 and yearly...

You take out a 40 year loan with effective annual interest i = .05 and yearly payments at the end of each year being $10, 000 for the first 20 years, and then $15, 000 for the next 20 years. Find the outstanding balance after the fourth payment. Also find the outstanding balance after the 37th payment.

Today, Malorie takes out a 30-year loan of $200,000, with a fixed interest rate of 4.5%...

Today, Malorie takes out a 30-year loan of $200,000, with a fixed interest rate of 4.5% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate. Malorie will make monthly repayments over the next 30 years, the first of which is exactly one month from today. The bank calculates her current monthly repayments assuming the fixed interest rate of 4.5% will stay the same over the coming 30 years. (c) Calculate...

Subjects