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Math Help - Business Math Help needed

  1. #1
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    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
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  2. #2
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    Lexington, MA (USA)
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    Hello, Ganymede!

    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: . \$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.

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  3. #3
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    Thanks, Soroban
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