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Calculate the amount of capital outstanding after six years

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Question - A man takes out a loan over 25 years. He makes monthly repayments in arrears. The first payment is $50 and the remaining payments increase by $5 each time until the payments reach $770. The remaining payments are then all $770. The annual effective rate of interest is 7.5%.

(i) Show that the amount of money that the man borrowed is $66,767.

(ii) Calculate the amount of capital outstanding after 6 years.

(iii) Calculate the amount of capital repaid in the 6th year.

(iv) Calculate the interest paid in the 73rd payment. Comment on your answers to parts (i), (ii), (iii) and (iv).

(v) At the end of the sixth year (after the payment then due) the man decides to reschedule the loan over a term of ten years with level monthly payments. He negotiates a deal with the loan company to reduce the interest he pays by 0.1% pa. Calculate how much he saves (compared to his original loan) under this arrangement.

Reference no: EM132988203

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