Fred borrowed 25,000 from a bank at an interest rate of 10%compounded monthly. T

Question

Fred borrowed 25,000 from a bank at an interest rate of 10%compounded monthly. The loan will be repaid in 36 equal monthlyinstallments over 3 years. Immediately after his 20th payment, fredwants to pay the remainder of the loan in a single payment. Computethe total amount he must pay. I do not understand how to get to a factor with the .8333% init (A/P, 0.8333%, 36); that is, it isn't in the table in back ofthe book; how do I get that factor? Fred borrowed 25,000 from a bank at an interest rate of 10%compounded monthly. The loan will be repaid in 36 equal monthlyinstallments over 3 years. Immediately after his 20th payment, fredwants to pay the remainder of the loan in a single payment. Computethe total amount he must pay. I do not understand how to get to a factor with the .8333% init (A/P, 0.8333%, 36); that is, it isn't in the table in back ofthe book; how do I get that factor?

Explanation / Answer

3 years

36 periods

?

Future Value of the Single Payment

$29,513.62 (1+0.10)1

Present Value (PV) of the borrowedamount $25,000 Interest Rate (Compounded Monthly) 10% Number of years

3 years

Number of Periods (3 * 12)

36 periods

Future Value of the Loan (FV)

?

Using Execl FV Function: Interest Rate (Rate) [10% / 12] 0.8333% Number of Periods (Nper) 36 Present Value of the Loan (PV) -$25,000 Future Value of the Loan (FV) $33,704.55 PVoAF(0.8333%,36)   1.348182 ($33,704.55 / $25,000 = 1.348182) After the 20th Payment he wants to paythe remainder of the loan in a single payment: Calculating the Future Amount up to20th payment: Using Excel FV Function: Interest rate 0.8333% Number of Periods (Nper) 20 Present Value of the Loan (PV) -$25,000 Future Value (FV) $29,513.62 Future Value of the amount up to 20th payment $29,513.62 FV = PV (1+r)t

Future Value of the Single Payment

$29,513.62 (1+0.10)1

$32,464.98

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