SOLUTION: Mary must pay bank the bank $2000 which is due in one year.She then lesson her debt in advance and therefore pays $600 after 3 months and another $800 four months later.If the bank

Question 1091846: Mary must pay bank the bank $2000 which is due in one year.She then lesson her debt in advance and therefore pays $600 after 3 months and another $800 four months later.If the bank agrees that both payment are subject to the same interest of 14% per annum. How much would she have to pay at the end of the year to settle their outstanding debt?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
this depends very much on how the bank handles partial years.

they could be chargins you interest on the remaining balance at the end of the month (standard practice).

they could be charging you interest on the average daily balance as they do with credit cards.

they could be charging you interest compounded annually, monthly (standard practice), or daily.

you really need to understand the terms of the loan to determine how much it would cost you.

i'm going to assume they are charging you interest compounded monthly on the remaining balance of the loan.

that should give you a fair assessment of of what you will owe at the end of the loan period.

the following spreadsheet shows the calculations.

$$$

your monthly interest rate is .14/12.

you start out with 2000 remaining balance.
at the end of the first month that is multiplied by (1 + .14/12) to get 2023.33...
at the end of the second month, 2023.33... is multiplied by (1 + .14/12) to get 2046.93.....
at the end of the third month, 2046.93... is multiplies by (1 + .14/12) to get 2070.81... and then 600 is subtracted from that to get 1470.81...

this continues until the end of the 12th month.
the remaining balance at the end of the 12th month is what you still owe.

the interest calculated at the end of each month is the remaining balance from the previous month * .14/12.

for example, the interest owed at the end of month 7 is equal to 1522.90... * .14/12 which is equal to 17.76...

the payment of 800 is made at the end of month 7 after the interest was calculated from the previous month and added to the remaining balance from the previous month.

the remaining balance at the end of month 7 is therefore calculated as:

1522.90. * (1 + .14/12) - 800 = 740.66...

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