Question
In: Finance
Suppose that you are interested in borrowing $5300 for the purchase of a second hand car....
Suppose that you are interested in borrowing $5300 for the purchase of a second hand car. Suppose that you would like to make fix amount quarterly payments (making the first payment by the end of the first quarter), and that you want to be debt free by the end of 7 and a half (7.5) years.
If the interest rate charged by the bank is 4.6%, then:
The quarterly amount that you would have to pay for this loan is: $Answer
Solutions
Expert Solution
| Loan amount | $5,300 | |||||||
| Frequency of payment | Quarterly | |||||||
| Tenor | 7.5 years | |||||||
| No. of quarters | 30 | (7.5 x 4) | ||||||
| Interest rate | 4.60% | |||||||
| Interest per quarter | 1.15% | (4.6%/4) | ||||||
| In excel, fixed instalment can be calculated using the formula - PMT | ||||||||
| =pmt (rate per period, number of periods, -loan amount) | ||||||||
| =pmt(1.15%, 30, -5,300) | ||||||||
| $209.89 | ||||||||
| Hence, quarterly instalment is $209.89 | ||||||||
| Let's verify this in the below table | ||||||||
| A | B | C (Closing Principal * 1.15%) | D | E | ||||
| Quarter | Instalment | Interest on Principal | Principal = B - C | Closing Principal | ||||
| 1 | $209.89 | $60.95 | $148.94 | $5,151.06 | (60.95 = 5,300 * 1.15%) | |||
| 2 | $209.89 | $59.24 | $150.66 | $5,000.40 | ||||
| 3 | $209.89 | $57.50 | $152.39 | $4,848.01 | ||||
| 4 | $209.89 | $55.75 | $154.14 | $4,693.87 | ||||
| 5 | $209.89 | $53.98 | $155.92 | $4,537.95 | ||||
| 6 | $209.89 | $52.19 | $157.71 | $4,380.24 | ||||
| 7 | $209.89 | $50.37 | $159.52 | $4,220.72 | ||||
| 8 | $209.89 | $48.54 | $161.36 | $4,059.37 | ||||
| 9 | $209.89 | $46.68 | $163.21 | $3,896.15 | ||||
| 10 | $209.89 | $44.81 | $165.09 | $3,731.06 | ||||
| 11 | $209.89 | $42.91 | $166.99 | $3,564.08 | ||||
| 12 | $209.89 | $40.99 | $168.91 | $3,395.17 | ||||
| 13 | $209.89 | $39.04 | $170.85 | $3,224.32 | ||||
| 14 | $209.89 | $37.08 | $172.81 | $3,051.50 | ||||
| 15 | $209.89 | $35.09 | $174.80 | $2,876.70 | ||||
| 16 | $209.89 | $33.08 | $176.81 | $2,699.89 | ||||
| 17 | $209.89 | $31.05 | $178.85 | $2,521.04 | ||||
| 18 | $209.89 | $28.99 | $180.90 | $2,340.14 | ||||
| 19 | $209.89 | $26.91 | $182.98 | $2,157.16 | ||||
| 20 | $209.89 | $24.81 | $185.09 | $1,972.07 | ||||
| 21 | $209.89 | $22.68 | $187.22 | $1,784.86 | ||||
| 22 | $209.89 | $20.53 | $189.37 | $1,595.49 | ||||
| 23 | $209.89 | $18.35 | $191.55 | $1,403.94 | ||||
| 24 | $209.89 | $16.15 | $193.75 | $1,210.19 | ||||
| 25 | $209.89 | $13.92 | $195.98 | $1,014.22 | ||||
| 26 | $209.89 | $11.66 | $198.23 | $815.98 | ||||
| 27 |
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