A local business borrows $200,000 to purchase a property. The loan has an annual

Question

A local business borrows $200,000 to purchase a property. The loan has an annual rate of 7% compounded monthly and a minimum monthly payment of $1458.

a) Approximately how many years will it take the business to pay off the loan if the minimum payment is doubled?
Round your answer to one decimal place.

b) How much interest will the business pay over the life of the loan if the minimum payment is doubled?

Round your answer to the nearest dollar.

c)How much in interest will the business save by doubling the minimum payment?

Assume the interest paid when the minimum payment $1458 is made is $203,326.

Explanation / Answer

a) we know the annuity payment formulae , P=(PV)r/(1-(1+r)^-n)

here P= minimum payment,PV=present value, r=rate per period, n=number of periods

form the given data we have P=2*1458*12, PV=200000,r=7%

-(1+r)^-n=479

aplly log on both sides then n*log(8)=log(479)

n=0.90 years(approximately1)

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