Mr Benard is struggling to repay his loan of $ 400,000 with payments of $ 7,200...
Mr Benard is struggling to repay his loan of $ 400,000 with payments of $ 7,200 made monthly in arrears for 6 years.
(a) Calculate the FLAT RATE OF INTEREST per annum
(b) Hence, or otherwise, calculate the APR of Mr Benard's loan
After exactly one , loan company offers to " help" Mr Benard by restructuring his loan with new monthly payments of $ 4,000 made in arrears
(c) Assuming the company charges the same APR as Mr Benard's original loan. Calculate the term of the new loan
( d) Calculate how much more interest in total Mr Benard will pay on his restructured loan than on his original loan
Homework Answers
(a) Flat Rate= 4.9333% as calculated below:
(b) APR is arrived at using the RATE function of Excel at 8.948524% as follows:
(c) It is assumed that the question refers to position 'after exactly one year'
The term of new loan is arrived at 177.88 months using the NPER function of Excel
(d): Total payment of new loan = Monthly payment* new term= $4,000*177.881966 = $711,527.86
Total payment for remaining period as per old plan= Monthly payment* Remaining period =$7,200*5*12 = $432,000
Increase in total payment (which is towards interest, hence increase in interest)= $711,567.86-$432,000 = $279,527.86
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