Select a loan amount, interest rate, and number of months to pay back and answer the...

Select a loan amount, interest rate, and number of months to pay back
and answer the following questions.
Loan:		Rate:

a) What is the monthly payment amount?

b) How much interest expense would be included in your first payment?

c) How much interest expense would be included in your last payment?

d) How much interest would you pay in total over the term of the loan?

Expert Solution

Solution:

Assume Loan amount = $100,000

Let Interest rate = 12%, Monthly rate of interest = 1%

Number of month to pay back = 12 months

a) Monthly payment amount = Loan amount / Cumulative PV factor at 1% for 12 periods

= $100,000 / 11.25508 = $8,885

Computation of interest and principal repayment
Period	Cash Paid	Interest Amount	Principal Repayment	Ending balance of loan
0				$100,000.00
1	$8,885.00	$1,000.00	$7,885.00	$92,115.00
2	$8,885.00	$921.15	$7,963.85	$84,151.15
3	$8,885.00	$841.51	$8,043.49	$76,107.66
4	$8,885.00	$761.08	$8,123.92	$67,983.74
5	$8,885.00	$679.84	$8,205.16	$59,778.58
6	$8,885.00	$597.79	$8,287.21	$51,491.36
7	$8,885.00	$514.91	$8,370.09	$43,121.27
8	$8,885.00	$431.21	$8,453.79	$34,667.49
9	$8,885.00	$346.67	$8,538.33	$26,129.16
10	$8,885.00	$261.29	$8,623.71	$17,505.45
11	$8,885.00	$175.05	$8,709.95	$8,795.51
12	$8,885.00	$87.96	$8,795.51	$0.00

b: Interest expense would be included in first payment = $1,000

c. Interest expense would be inclueded in last payment = $87.96

d. Total amount repaid over 12 months = $8,885*12 = $106,620

Amount of loan = $100,000

Total interest paid over the term of loan = $106,620 - $100,000 = $6,620

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