Question 16
Sam plans to buy a car for R125 000. He pays a 15% deposit and manages to secure a bank loan for the outstanding amount. The bank charges 12,5% per annum, compounded monthly. Determine what Sam’s
minimum monthly payment will be if the loan has to be repaid in six years’ time.
[1] R998,17
[2] R2 104,94
[3] R2 476,40
[4] R1 476,69
the car costs 125,000
the deposit is 15% of 125,000 = 18,750
the amount of the loan is 125,000 - 18,750 = 106,250
the bank charges 12.5% per year compounded monthly.
12.5 per year compounded monthly equals 12.5/12 = 1.0416666667% per month.
the loan needs to be repaid in 6 years.
6 years * 12 months per year would be 72 months.
using the texas instruments BA II financial calculator, you would make the following entries.
PV = 106,250
FV = 0
I/Y = 12.5 / 12 = 1.041666666...
N = 12 * 6 = 72
you would then calculate PMT to get:
PMT = -2,104.937737
that's a monthly payment of 2,104.94, which is selection 2.
can someone explain the concept of amortization so l can answer the question below ?
Question 17
amortization of a loan is the reduction in the principal of the loan, which turns out to be the remaining balance on the loan.
each payment is made up of principal and interest.
you make a fixed loan payment.
part of the payment goes to pay of the interest on the remaining balance of the loan, and the other part is used to reduce the principal.
here's a good reference.
https://www.thebalance.com/how-amortization-works-315522
Consider the amortisation of Sam’s loan in question 16 above.
What will the outstanding amount on Sam’s loan be after 3 years’ minimum payments have been made?
Assume the interest rate stayed fixed for the whole period.
[1] R103 224,20
[2] R53 125,00
[3] R62 921,07
[4] R74 024,78
there are calculators that tell you what the remaining balance on the loan is after a period of time.
the texas instrument BA II calculator will do that for you.
after makikng the previous entries to find the monthly payment, you would then enter the following:
2nd amort
p1 = 1
enter
down arrow.
p2 = 36
enter
down arrow
the calculator will tell you that the remaining balance on the loan is 62,921.06463.
i did the manual calculations in excel so you can see the change in the remaining balance of the loan as it progresses from the first month to the last month.
the printout of the month by month transactions is shown below:
each time assumes at the end of the month indicated.
time point 36 is the end of the 36th month, which is the end of the third year.
the printout shows that the remaining balanced at the end of the 36th month is equal to $62,921.06.
this is the same as the remaining balance that the calculator provided for the 36th month.
there are loan calculators online that will also do the same for you.
one such calculator can be found at www.bankarate.com amortization schedule calculator website
with this calculator, you would enter the following:
mortgage amount = 106,250
number of years = 6
calculator will show number of month = 72
interest rate percent per year = 12.5
you would then click on calculate and the calculator will tell you that the monthly payments are 2,104.94
you would then click on show amortization schedule and the calculator will show you the month by month amortization schedule.
since the study starts in march, 2018, you would then add 3 years to that and look for march, 2021.
the calculator will tell you that the remaing balance is 62,921.06, as we had earlier calculated.
there are other ways to find the remaining balance, but they're not necessarily as long as you have the calculators that will do that for you.