Hey guys can you give me tips to help tackle these question pls
Chris borrows $100000 at 8% compounding monthly, to be paid over 10 years with repayments of $1213.28 each month. After 5 years, the interest rate is reduced to 7.5%pa. (i dont know what to do for the After 5 years interest rate change)
a)Find the new repayment required for Chris to pay off loan in the same amount of time.
b)How much money does Chris save due to the interest rate cut?
the answers
a) $1199
b)$856.80
a)
1] First you need to find the future value after 5 years
n=5*12, 1=8, pv= 100,000, pmt= -1213.28, ppy=12
Solve for Fv
Fv= -59836.57
2] Then solve the new payments if the loan is payed off
n=60, i=7.5, pv= -fv <- previous fv but positive, fv=0, ppy=12
Solve for pmt
pmt= $1199.00
b)
1] You need to find the total amount paid for both types of options using:
Number of payments x Payment amount
Using 8%
60 x 1199 = 72796.80
using 7.5%
60 x 1213.28 = 71940
2] Find the difference between the 2 numbers
72796.80 - 71940 = $856.80