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?

Answer 1

A) we can calculate the EMI ( equall monthly installment) using the following formula =

where

E is EMI

P is Principal Loan Amount = 500,000

r is rate of interest calculated on monthly basis. = 12/12/100= 0.01

n is duration in number of months= 5*12 =60

= 500,000*0.01* (1+.01)60/(1+0.01)60-1

= 5000* 1.8167 / 1.8167-1

EMI = 11,122

The loan repayment schedule is as follows :-

B) At the end of year 3, Ie at the end of 36 th month $ 2,36,283.35 of principal is outstanding.

C) In the first month of year 4 of the loan, Ie 37 th month  interest paid is $ 2362.83.

D)  interest paid over the last two years of the loan is as follows :-

interest paid over the last two years = 30,662,93