Question

Time to repay installment loan  Personal Finance Problem - Mia Salto wishes to determine how long it will take to repay a ​$13,000 loan given that the lender requires her to make annual​end-of-year installment payments of $2,946.

a.  If the interest rate on the loan is 14%, how long will it take for her to repay the loan​ fully?

b.  How long will it take if the interest rate is 11%?

c.  How long will it take if she has to pay 18% annual​ interest?

d. Reviewing your answers in parts a​, b​, and c​, describe the general relationship between the interest rate and the amount of time it will take Mia to repay the loan fully.

Answer 1

Loan Amount = $13,000

Annual Installment = $2,946

a.

Interest Rate = 14%

Calculating Time Period,

Using TVM Calculation,

T = [FV = 0, PV = 13,000, PMT = -2,946, I = 0.14]

T = 7.34 years

b.

Interest Rate = 11%

Calculating Time Period,

Using TVM Calculation,

T = [FV = 0, PV = 13,000, PMT = -2,946, I = 0.11]

T = 6.37 years

c.

Interest Rate = 18%

Calculating Time Period,

Using TVM Calculation,

T = [FV = 0, PV = 13,000, PMT = -2,946, I = 0.18]

T = 9.55 years

d.

As interest rate increases, time for repayment of the loan increases.