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    Shrey Mangal
    The document contains two examples of calculating loan payments and interest using the present value of an annuity formula. The first example calculates a $4000 personal loan paid back over 48 months at 0.9% monthly interest, with a monthly payment of $102.99 and total interest of $943.52. The second example is for an $80,000 business loan at 9.42% annual interest compounded monthly over 8 years, with a monthly payment of $1189.52, an unpaid balance after 1 year of $72963.07, and interest paid in the first year of $7237.33. Both examples use the present value of an annuity formula to calculate the monthly loan payments.

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    1

    Uploaded by

    Shrey Mangal
    80 views2 pages
    The document contains two examples of calculating loan payments and interest using the present value of an annuity formula. The first example calculates a $4000 personal loan paid back over 48 months at 0.9% monthly interest, with a monthly payment of $102.99 and total interest of $943.52. The second example is for an $80,000 business loan at 9.42% annual interest compounded monthly over 8 years, with a monthly payment of $1189.52, an unpaid balance after 1 year of $72963.07, and interest paid in the first year of $7237.33. Both examples use the present value of an annuity formula to calculate the monthly loan payments.

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    The document contains two examples of calculating loan payments and interest using the present value of an annuity formula. The first example calculates a $4000 personal loan paid back over 48 months at 0.9% monthly interest, with a monthly payment of $102.99 and total interest of $943.52. The second example is for an $80,000 business loan at 9.42% annual interest compounded monthly over 8 years, with a monthly payment of $1189.52, an unpaid balance after 1 year of $72963.07, and interest paid in the first year of $7237.33. Both examples use the present value of an annuity formula to calculate the monthly loan payments.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    80 views2 pages

    1

    Uploaded by

    Shrey Mangal
    The document contains two examples of calculating loan payments and interest using the present value of an annuity formula. The first example calculates a $4000 personal loan paid back over 48 months at 0.9% monthly interest, with a monthly payment of $102.99 and total interest of $943.52. The second example is for an $80,000 business loan at 9.42% annual interest compounded monthly over 8 years, with a monthly payment of $1189.52, an unpaid balance after 1 year of $72963.07, and interest paid in the first year of $7237.33. Both examples use the present value of an annuity formula to calculate the monthly loan payments.

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 2

    The

    1.
    If you borrow $4000 from an online lending company to buy a PC and agree to pay it in
    48 equal installments at 0.9% interest per month on the unpaid balance, how much are
    your monthly payments? (ans= $102.99)
    It is a problem of annuity. We know the present value as PVoa = 4000. Now we want to
    find out the payment of each moth PMT given the interest rate is 0.9% monthly for 48
    months.
    The formula of present value of an annuity is:
    PVoa = PMT [(1 - (1 / (1 + i)n)) / i]
    PVoa = Present Value of an Ordinary Annuity
    PMT = Amount of each payment
    i = Discount Rate Per Period
    n = Number of Periods
    Substituting the values to the above equation,
    1
    1
    48
    1 0.9%

    4000 PMT
    0.9%
    PMT 102.99
    So the monthly payment is $102.99.
    And how much total interest will be paid. (ans= $943.52)
    The total payment is then $102.99 * 48 = $4943.52.
    So the interest will be paid:
    $4953.52 - $4000 = $943.52.
    2.
    A business borrows $80,000 at 9.42% interest compounded monthly for 8 years.
    It is still a problem of present value of an annuity is given to find out the monthly
    payment.
    a.) what is the monthly payment?
    9.42%
    0.785%
    The interest rate per month is i
    12
    The total periods are: n 8 *12 96 months.
    So
    1
    1
    96
    1 0.785%

    80000 PMT
    0.785%
    PMT 1189.52

    The monthly payment is $1189.52.


    b. what is the unpaid balance at the end of the first year
    The future value of all the payments over the first year (12 months) is
    FVoa = PMT [((1 + i)n - 1) / i]
    12
    1 i n 1
    1 0.785% 1

    1189.52
    FV payments PMT
    14906.96

    i
    0.785%

    The future value of the original loan amount in 12 months is


    n
    12
    FVloan PV 1 i 80000 1 0.785% 87870.03
    The remaining balance on the loan at the end of the first year is equal to the future value
    of the loan less the future value of the payments:
    Balance FVloan FV payments 87870.03 14906.96 72963.07
    c.) how much interest was paid during the first year?
    Here we can construct an amortization table in Excel to find out the interest
    The monthly interest paid = Beginning balance * Interest Rate
    For example, the interest rate for the first month is
    Interest =$80000 * 0.785% = $628.00.
    The ending balance = Beginning balance Payment + Interest
    For example, the ending balance of the this month is
    Balance at the end of the first month = 80000 1189.52 + 628 = $79438.48
    It is also the beginning balance of the next month.
    After calculated all the monthly interests for the first 12 month period, add the interests
    together.
    The interest paid is then $7237.33. (the last digit is due to the rounding error).
    ANSWERS
    a.) 1189.52,
    b.) 72963.07
    c.) 7237.31

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