# silly loan question - driving me nuts!

• Aug 21st 2012, 06:26 PM
audusdyengbp
silly loan question - driving me nuts!
Colin buys a new car worth \$25,000. He pays a 10% deposit (i.e \$2500) and agrees to pay \$500 at the end of each month for as long as necessary.
If interest is at 14% pa effective, find:

1. the number of payments of \$500 requires
2. the amount of the final smaller payment required one month after the last full payment of \$500
3. the loan outstanding after 2 years using both the retrospective and prospective methods

please see the attached working out for part 1, the answer is 62 but i am confused on how to get to that.
• Aug 21st 2012, 07:10 PM
MaxJasper
Re: silly loan question - driving me nuts!
i_effective=14% (compounded monthly) ==> i_nominal = 13.17% compounded monthly.
Use Pv=\$25000-\$2500=\$22500, i=13.17%, pmt=\$500, Fv=\$0 ==> n=62.4 months
Use n=62 months, pmt=\$500, Pv=\$22500, i=13.17% ==> Fv=\$196.99 to be paid 1 month after the last \$500 at n=63

Pv=Present value
Fv=Future value
• Aug 22nd 2012, 04:19 AM
Wilmer
Re: silly loan question - driving me nuts!
Where does your thumbnail solution come from?