# Business Math Help needed

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• May 30th 2008, 03:08 AM
Ganymede
Business Math Help needed
I need some pointers for following problems. it's very urgent

1. Is it possible that the interest rate can be increased to a level where the loan term becomes infinite unless the periodic repayment is increased.

2. Exactly a year ago, Laura borrowed $250,000 from a bank, to be repaid in equal monthly instalments over 20 years at an interest rate of 8 per cent per annum. Today, the bank told them that it was introducing a monthly fee of$10 but she could continue to repay the loan by making her current monthly repayments. How much will be increase in Loan repayment tenure

thanks in anticipation
• May 30th 2008, 04:20 AM
Soroban
Hello, Ganymede!

Quote:

1. Is it possible that the interest rate can be increased to a level where
the loan term becomes infinite unless the periodic repayment is increased?

It certainly is possible . . . I'll illustrate with a specific example.

We take out a $12,000 loan at 9% to be repaid in 48 equal monthly payments. . . The amortization formula gives us a monthly payment of about$299.

Suppose our bank raises the rate to 29.9% . . . (yike!)
The monthly interest will be: .$\displaystyle \$12,000 \times 0.299 \times\frac{1}{12} \;=\;\$299$

Our monthly payment covers the interest only;
. . none of it is used to reduce the amount of the loan.

We will always owe them \$12,000 ... and make monthly payments forever.

• Jun 2nd 2008, 10:55 AM
Ganymede
Thanks, Soroban