Question

You have borrowed $8000 from the bank. Suppose you want to repay a fixed amount of money for each of the following n years (except possibly the last year), and the annual interest rate r does not change in these n years. For example, if r = 10% and you repay $4000 each year, then you will own the bank $(8000+800-4000) = $4800 next year, $(4800+480-4000) = $1280 two years after, and at the end of the third year you only need to repay $(1280 + 128) = $1408.

(a) If r = 10% and you want to repay all the money in 10 years, how much do you need to pay each year?
(b) If r = 20% and you want to repay all the money in 10 years, how much do you need to pay each year?
(c) If r = 20% and you want to repay $2500 each year (except possibly the last year). How many
years do you need to repay all the money?
(d) If r = 24% and you want to repay $2000 each year (except possibly the last year). How many
years do you need to repay all the money.

Answer 1

a. P = Po + Po*r*t.
P = 8000 + 8000*0.1*10 = $16,000 After 10 years.

Amt. = $16,000/10yrs. = $1600/yr.

b. Same procedure as part a.

c. 1st. BAL. = (Po + I) - 2500. = (8000 + 0.2*8000) - 2500 = $7100.

2nd. BAL. = (7100 + 0.2*7100)-2500 = $6,020.

3rd. BAL = (6020 + 0.2*6020) - 2500 = $4724.

4th. Finish the process:

d. Same procedure as part c.