Hi Guys,
Need help with this question regarding interest only loans.
Question: Jackson takes out an interest-only loan of $30 000 from the bank to buy a painting, which he hopes to resell at a profit in 12 months’ time. The interest on the loan is 9.25% per annum, compounding monthly, and he makes monthly payments on the loan. How much will he need to sell the painting for in order not to lose money?
My reasoning:
Monthly payment = 9.25/(12x100) x 30000 = $231.25
Total Payment for the Year = $231.25 x 12 = $2775
Sell Painting = $2775 + $30000 = $32775
My question is shouldn't the price of selling of the painting be more because ultimately, the person would have to give back that 30000 + interest or is it because it is an interest only loan that the answer I got is correct which gives the selling price of the painting.
Also, could someone please explain to me how annuities work.
All help will be much appreciated.
Thanks