Question

You currently have two loans outstanding: a car loan and a student loan. The car loan requires that you pay $325 per month, starting next month for 26 more months. Your student loan is requires that you pay $87 per month, starting next month for the next 38 months.

A debt consolidation company gives you the following offer: It will pay off the balances of

your two loans today and then charge you $501 per month for the next 45 months, starting

next month. If your investments earn 3.32% APR, compounded monthly, how much would

you save or lose by taking the debt consolidation company’s offer?

If you lose, state your answer with a negative sign (e.g., -25,126)

Answer 1

Answer : Their will be a loss of $ 9892.26 in the present value if we chose the new EMI option .

Here, Investment rate is assumed to be disconting rate .

Futher annualised rate of 3.32% is converted in to monthly rate of 0.277%.

For calculation refer the below image.

Present value monthly rate is caculated similer to present value annual rate .

(Subtitute Annual rate with monthly rate and substitute years with months)