Question

1. You borrow $2,400 to pay for a Caribbean vacation and will pay it off over 2 years with regular monthly payments.

   1. What is the regular payment if interest is charged on the loan amount at APR of 12% interest is charged monthly on the balance still owed. Round up to the next whole dollar.

   2. Create an amortization table (balance sheet) for this loan.

   3. What is the amount of the balloon payment (the last payment)?

   4. What is the total amount of payments made? What is the total cost of the loan? (The cost of the loan is the total amount of interest paid. This is most easily calculated as cost = (number of payments)*(payment amount) - (principal). You may have to adjust it slightly based on the last payment, though!)

   5. How much would be saved in interest if you paid an extra $20 per month?

   6. How much faster would you pay off the loan if you paid an extra $20 per month?

Answer 1

First we find the monthly payments

We use financial calculator

N = 24

I/Y = 1

PV = 2400

FV = 0

Compute PMT, we get 112.98, round up to 113

Last payment is 112.36

Total Payment made = 113*24 = 2711.36

Total Interest = 2711.36 -2400 = 311.36

If amortisation is increased by 20 per month:

Revised schedule is as below:

Instead of 24 payments, 20 payments can be made

Interest = 133 * 20 - 2400 = 260

Interest saved = 311.36 -260 = 51.36