Question

In: Finance

You borrowed $10,000 two years ago. The loan terms are: 5-year loan with APR of 25%...

You borrowed $10,000 two years ago. The loan terms are: 5-year loan with APR of 25% compounded monthly.  

1. What is the monthly payment for the loan?

2. What is the loan balance today?

3. Today, you decide to pay off the loan in 20 months rather than the remaining life of the loan. How much more do you have to add to your monthly payment in order to accomplish the goal?

Please include Excel formulas.

Solutions

Expert Solution

(Suppose Loan starting Date is April, 2018)

$10,000 Two years Ago,
5 Years Term(5*12= 60 Payment), 25% Compounded Monthly (25%/12= 0.0208)
(1) Monthly Payment for the loan :-
$10,000 = Monthly Payment * [1 – (1/1.0208)60] / 0.0208
Monthly Payment = $10,000 / [ 1- 0.979660] /0.0208
= $10,000 / [ 1 - 0.2908 ] / 0.0208
= $10,000 / 34.0972
= $293.28 or say $293.00.................Monthly Payment for loan (1)

(2) Loan balances Today... is (after 2 years)
= $ 7,388.41 (as per excel sheet calculation)

3) If today, i decide to pay off the loan in 20 months rather than the remaining life of the loan.
How much more do you have to add to your monthly payment in order to accomplish the goal...
By making Trail and Error method into amortization schedule we found that $162.20 added into current payment of EMI so that loan is closed within 20 months from as of now. (Atmost 44 emi (24+20))
New EMI is $455.48 respectively for next 20 month.


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