Question

In: Finance

Anna decides to take out a four-year loan for $30,000 to purchase a new car. Her...

Anna decides to take out a four-year loan for $30,000 to purchase a new car. Her loan officer tells her that she will make equal, monthly payments for the loan at an interest rate of 8 percent per year.

What will the balance of the loan be after 2 years of making payments?

Solutions

Expert Solution

Anna has taken a $30,000 loan at an interest rate of 8% for 4 years and is to be repaid in monthly equal payments.

To calculate the balance of the loan after 2 years of making payments, we need to prepare a loan amortizarion schedule.

Monthly payments can be calculated using PMT function in Excel, wherein rate will be interest rate per annum, i.e. 8% divided by 12 because payments are being made monthly. Also, nper will be 48(4*12) and PV will be the loan amount, i,e, $30,000. Then, we need to find the principal part of the payment by deducting interest component from the total payment made each month.

We need to find the loan balance after 24 months of payments.

The schedule is as follows:

The formulas used are as follows:


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