Interest-only loans and sinking funds; Reducing-balance repayments and outstanding balance; Total interest/cost; Frequency, amount, term, lump sums, variable rates and offsets; Affordability, reasonableness and model limitations
Example 1
A $2000 loan is repaid by 12 equal month-end payments at 1% per month. Calculate the theoretical payment before rounding instalments. Round to 2 decimal places.
Show worked answer
Answer: 177.70
R=[1−(1+i)−n]Pi. Interest is charged before each payment.
Rounded result: 177.70.
Example 2
A loan balance is $6000, monthly interest is 1%, and the month-end payment is $600. Find the balance after that payment. Round to 2 decimal places.
Show worked answer
Answer: 5460.00
B(next)=B(1+i)−R.
Rounded result: 5460.00.
Example 3
A $2000 loan charges 1% monthly and is repaid by 12 theoretical equal payments. Find total interest, ignoring cent-rounding adjustments. Round to 2 decimal places.
Show worked answer
Answer: 132.37
Total repaid minus principal gives total interest.
Rounded result: 132.37.
Put it into practice.
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