Posted by Denis Borris on September 27, 2002 at 03:21:31:
In Reply to: Loan repayment posted by Goku on September 27, 2002 at 00:15:02:
: A home owner is offered a home improvement loan of $8000 to be repaid over 6 years at 24% per annum, compounding quarterly. What is the appropriate montly repayment? What is the balance outstanding after 4 years?
: Can you tell me if I'm going in the right direction. I'm going to use the equation Pv/Payment=(1-(1+i/m)^-n)/(i/m)
: i/m=0.24/12
: n=4*12=48
: pv=8000
: and payment =?
All you need to worry about here is getting the proper "i";
24% annual cpd quarterly = 26.24769....% : (1 + .06)^4.
So the rate (i) in your monthly payment formula must reflect this;
you need to find the rate which, if compounded monthly, will result
in 26.24769%: OK?
Hint: calculating "effective" rates can be done using a simple "savings account";