CoolX

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.

CRGreathouse

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.

CoolX

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

CRGreathouse

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).

paybill

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