Question

Suppose you apply a 5-year bank loan of $500000 at 12% APR, repayable in equal installments at the end of each month.

a. How much do you need to pay each month?

b.How much is owed (to the bank) at the end of year 3?

c. How much interest is paid at the first month of year 4 of the loan? d. How much interest is paid over the last two years of the loan? (Round up your answer to the

nearest two decimal

d. How much interest is paid over the last two years of the loan? (Round up your answer to the nearest two decimal

Answer 1

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

P= Loan amount

R is the interest rate per month (12%/12=1%)

N is the number of monthly instalments=12*5=60

EMI=(500,000*0.01*(1.01)^60/(1.01^60)-1

EMI (monthly payment)=$11,122.2

Below is the amortization schedule for this loan

b. The amount owed by the end of the year 3= ending balance of 36 period=$236,273.7

c.The interest paid in first month of Year 4=37 period interest=$2,362.7

d. Interest paid in the last two years=sum of interest(37 period to 60 period)=$30,659.7