Moke must repay a loan for 80,000 at an annual effective interest rate of 8%

Finance Dec 23, 2020

Moke must repay a loan for 80,000 at an annual effective interest rate of 8%. Moke makes 30 end of year payments. For the first 29 payments, she pays 150% of the interest due on the unpaid balance. For the 30th and final payment, she pays the balance due. Find the amount of the final payment.

Expert Solution

Ans:

Given = Loan amount = 80,000

Interest Rate = 8%

Duration of loan = 30 Years

It is also given that she pays 150% of interest due on unpaid balance, since interest rate is 8% and 150% of same is 12% of unpaid balance i.e. principal is reducing 4% per year(12%-8%).

It is paid for 29 years.

So Unpaid balance at end of 29^th years will be

80000 x (1-.04)^29

80000 x 0.3061017

24,488.14

Now this amount is paid as final balance including 8% interest

So final balance payment is 24,488.14 x (1+.08) = 26,447.19 Ans

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