Question

Question 16 So that he can build a battery farm in the middle of the desert, Elon takes out a loan of $2,600 million from HSBC bank at 18.00% p.a. compounded monthly and promises to pay it back over four years with equal monthly payments. Eleven months after taking out the loan (just after the eleventh payment is made), he stops making the payments for the following 11 months because battery business is bad. There is a monthly penalty of $22.50 million for each missed payment plus interest on the outstanding loan amount. Assume he takes 37 months to make the remaining payments once he restarts paying, that the interest rate remains unchanged, and that interest is also charged on unpaid penalties. Which of the following is closest Elon's new monthly payments when he restarts paying? a. $83.03 million b. $100.29 million c. $76.37 million d. $99.92 million e. $99.42 million

Answer 1

Answer:

Monthly payments for $2,600 million loan at 18% p.a. compounded monthly for 48 months is $76.37 million. This can be computed using following function

=PMT(18%/12,48,-2600)

Loan outstanding after making first eleven monthly payments is $2,156.61 million, calculated as:

=FV(18%/12,11,76.37,-2600)

Since no repayments were made during next eleven months, the loan outstanding including penalties and interest will be $2,807.30 million, calculated as:

=FV(18%/12,11,22.50,2156.61)

Finally, $2807.30 million is to be repaid in 37 equal monthly installments at same rate of interest. The monthly payments can be calculated as

=PMT(18%/12,37,-2807.30)

= $ 99.42 million

Hence, the correct option is (e).