A TCC student takes out a loan for $4,500 at 8.25% interest on May 1 and plans t
ID: 3147318 • Letter: A
Question
A TCC student takes out a loan for $4,500 at 8.25% interest on May 1 and plans to repay the loan on October 15. The student also plans to make a partial payment of $2,000 on July 1.
Based on the above scenario, answer the following question:
a.How many days are there from the start of the loan to the time of the partial payment?
b.How much interest has accumulated from the start of the loan to the time of the partial payment if exact interest is calculated?
c.How much of the partial payment will go towards paying off the principal? Use the interest you calculated from the previous question.
d. What is the new principal once the partial payment is made?
e. What is the ending balance for the student? (What do they pay to pay off the loan?)
Explanation / Answer
A): May= 30 days(since may 1 is starting day and therefore it is not included).
June= 30 days
Therefore upto july 1 i.e the day of partial payment we have 30+30 = 60 days.
B): upto the day of partial payment (july 1) we have 60 days.
Therefore exact interest is calculated as
Interest=principal x rate x time(in years).
Interest=4500 x8.25%x (60/360)
Interest=4500x 8.25/100 x1/6
Interest=$61.875
C):$61.875 from partial payment of$2000 will go towards paying interest.therefore the remaining amount i.e 1938.125 will go towards paying off the principal amount.
E):the new principal after partial payment is made is
$4000-$1938.125=$2061.875
F):from july 1 to October 15 i.e for 106 days,the interest accumulated is as
Interest= 2061.875x 8.25%x(106/360)
Interest=$50.09
So total amount of money paid as interest is $50.09+$61.875=$111.96.
Total amount to be paid to pay off loan is principal amount +interest.
which is =$4000+$111.96=$4111.96.
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