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July 3rd, 2010, 11:55 AM   #1
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Loan

Hello, since an exam is coming up, I was practicing.

Came across a question and solved it, but want to make sure if it is correct.

Q)An overseas student wishes to take a loan for $60,000 to pay for his university
studies. The bank agrees to let him pay in three installments: $10,000 due in 3 years
time, $30,000 due in 10 years time and the balance at the end of the 15 year period.
Calculate the amount of the final payment if the interest rate is 6% compounded six monthly.

A) this is how i solved it:

1) 10,000 (1+0.06/6)^6 = 10,615.20
2)30,000 (1+0.06/20)^20 = 31,852.24
So, there is 20,000$ remaining.
3)20,000(1+0.06/30)^30 = 21235.46

Is this correct? do I need to add something?

Much appreciated.
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July 3rd, 2010, 12:21 PM   #2
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Re: Loan

You divide by 6 and 20 when you should be dividing by 2 (two payments per year). But more than that, you're having the student *earn* interest rather than *pay* interest in the first two calculations, which isn't right. You need to take the principle ($60,000) accrue interest for 3 years, subtract $10,000, accrue interest for 7 years, etc.
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July 3rd, 2010, 12:28 PM   #3
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Re: Loan

Ok, re-did it again and this is what I got.

By using S=P(1+i)^n.

S= 60,000(1+0.06/2)^30 = 145,635.74
S1=10,000(1+0.06/2)^24 = 20,327.94
S2=30,000(1+0.06/2)^10 = 40,317.49

FP= 145,635.74 - 20,327.94 - 40,317.49 = 8499.31

Is this one correct?

Appreciate your quick reply
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July 5th, 2010, 09:08 AM   #4
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Re: Loan

Quote:
Originally Posted by CoolX
Is this one correct?
Looks like it. Not the way ?I was thinking of doing it, but valid nonetheless. I didn't check the numbers, just that it was set up properly (so I'm trusting your calculator).
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October 27th, 2010, 03:51 AM   #5
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Re: Loan

Yes it is correct within this interest rates. The main principle will change then your calculator will give right answer.
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