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Economics Economics Forum - Financial Mathematics, Econometrics, Operations Research, Mathematical Finance, Computational Finance |
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July 3rd, 2010, 11:55 AM | #1 |
Newbie Joined: May 2010 Posts: 5 Thanks: 0 | 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 |
Global Moderator Joined: Nov 2006 From: UTC -5 Posts: 16,046 Thanks: 938 Math Focus: Number theory, computational mathematics, combinatorics, FOM, symbolic logic, TCS, algorithms | 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 |
Newbie Joined: May 2010 Posts: 5 Thanks: 0 | 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 | |
Global Moderator Joined: Nov 2006 From: UTC -5 Posts: 16,046 Thanks: 938 Math Focus: Number theory, computational mathematics, combinatorics, FOM, symbolic logic, TCS, algorithms | Re: Loan Quote:
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October 27th, 2010, 03:51 AM | #5 |
Newbie Joined: Oct 2010 Posts: 1 Thanks: 0 | 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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