Question

FIN220 Bank offers you a 5-year loan for 500,000 Baht at an annual interest rate of 5 percent, compounded monthly. What will your monthly loan payment be?

115,487.40

100,000.00

4,166.67

9,435.62

Answer 1

Given

Loan Amount = 500000 Baht

Rate of Interest = 5% Compounded Monthly

Interest rate per month = 5% /12= 0.4167% per month

No.of Years = 5

No.of Month = 5*12 = 60 Months

We know that , Present value of the future cash outflows is equal to the loan amount

S.No	Disc @ 0.4167%	Discounting Factor
1	( 1/1.004167)^1	0.9959
2	( 1/1.004167)^2	0.9917
3	( 1/1.004167)^3	0.9876
4	( 1/1.004167)^4	0.9835
5	( 1/1.004167)^5	0.9794
6	( 1/1.004167)^6	0.9754
7	( 1/1.004167)^7	0.9713
8	( 1/1.004167)^8	0.9673
9	( 1/1.004167)^9	0.9633
10	( 1/1.004167)^10	0.9593
11	( 1/1.004167)^11	0.9553
12	( 1/1.004167)^12	0.9513
13	( 1/1.004167)^13	0.9474
14	( 1/1.004167)^14	0.9434
15	( 1/1.004167)^15	0.9395
16	( 1/1.004167)^16	0.9356
17	( 1/1.004167)^17	0.9317
18	( 1/1.004167)^18	0.9279
19	( 1/1.004167)^19	0.9240
20	( 1/1.004167)^20	0.9202
21	( 1/1.004167)^21	0.9164
22	( 1/1.004167)^22	0.9126
23	( 1/1.004167)^23	0.9088
24	( 1/1.004167)^24	0.9050
25	( 1/1.004167)^25	0.9013
26	( 1/1.004167)^26	0.8975
27	( 1/1.004167)^27	0.8938
28	( 1/1.004167)^28	0.8901
29	( 1/1.004167)^29	0.8864
30	( 1/1.004167)^30	0.8827
31	( 1/1.004167)^31	0.8791
32	( 1/1.004167)^32	0.8754
33	( 1/1.004167)^33	0.8718
34	( 1/1.004167)^34	0.8682
35	( 1/1.004167)^35	0.8646
36	( 1/1.004167)^36	0.8610
37	( 1/1.004167)^37	0.8574
38	( 1/1.004167)^38	0.8538
39	( 1/1.004167)^39	0.8503
40	( 1/1.004167)^40	0.8468
41	( 1/1.004167)^41	0.8432
42	( 1/1.004167)^42	0.8398
43	( 1/1.004167)^43	0.8363
44	( 1/1.004167)^44	0.8328
45	( 1/1.004167)^45	0.8293
46	( 1/1.004167)^46	0.8259
47	( 1/1.004167)^47	0.8225
48	( 1/1.004167)^48	0.8191
49	( 1/1.004167)^49	0.8157
50	( 1/1.004167)^50	0.8123
51	( 1/1.004167)^51	0.8089
52	( 1/1.004167)^52	0.8055
53	( 1/1.004167)^53	0.8022
54	( 1/1.004167)^54	0.7989
55	( 1/1.004167)^55	0.7956
56	( 1/1.004167)^56	0.7923
57	( 1/1.004167)^57	0.7890
58	( 1/1.004167)^58	0.7857
59	( 1/1.004167)^59	0.7824
60	( 1/1.004167)^60	0.7792
		52.9902

Let the Monthly Installment amount be X

X * PVAF ( 0.4167%, 60 Months) = 500000 Baht

X * 52.99019 = 500000 Baht

X = 500000 Baht/ 52.99019

X = 9435.70 Bahts

Hence the Monthly loan payment is 9435.70 Bahts.Hence option 4 is Correct.

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