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You needed $10,000 and obtained the following loan:

Loan specifics: You are expected to pay 24 equal monthly installments ($A per month) at APR 12%, compounded monthly, starting from a month from obtaining the loan. If you miss a payment, your APR goes up to 24%, duration of the loan does not change but your monthly fixed payments go up.

You miss your 12th payment. On the day of your 13th payment, the bank offers you a new deal. If you pay an additional $820 at the time of your 13th payment, you will continue to make your payments as before with no interest hike.

Problem 1: If your discount rate is monthly 1.12%, would you prefer to make the additional payment or have the interest hike?

Reference no: EM132964567

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