Question

Nathan has a loan of $6000 to repay, with an interest rate of 8% compounded monthly. Nathan planned to make $150 payments at the end of each month to repay his loan, but is considering only $100 per month. How many additional months will it take to repay the loan if he pays $100 per month instead of $150?

(Hint: Round each term in months up to a whole number before finding the difference.)

Answer 1

Answer-

Loan amount to be repaid = PV = $ 6000
FVuture Value = $ 0
Interest rate = YTM = 8 % compounded monthly
YTM = 8 % / 12 = 0.667
Using financial calculator we input the values

Payments = PMT = $ 150

Number of months = N = ?
N = 46.68 months = 47 months

Payments = PMT = $100

Number of months = N =?
N = 76.89 months = 77 months

Therefore the additional months it will take to repay the loan if he pays $100 per month instead of $150
= 77 months - 47 months = 30 months