Answer to Question #164480 in Financial Math for aswini

Question

Rania buys an apartment for RM 315,000 with 15 % down payment. She takes a loan from a bank to settle the balance at an interest rate of 4.2 % compounded monthly. She is required to pay equal monthly payments for 25 years to settle the loan.

 

(a) Calculate the monthly payment. {3 marks}

(b) Calculate the total interest charged. {2 marks}

(c) If Rania fails to make the first four monthly instalments, how much could she pay on the fifth month to settle all the outstanding arrears? {2.5 marks}

(d) After paying for 20 years, Rania decides to settle the loan in full. Calculate the full settlement for Rania. {2.5 marks}

Answer 1

Amount paid for apartment : RM315000

Down payment: RM 315000–(15% × RM 315000)

= RM 315000–RM47250

=RM 267750

Therefore loan taken from the bank is RM 267750. This amount represents the principal upon which interest is charged.

FV= PV/[(1-(1+(r/m)^(-mn))/(r/m)]

Where r=0.042 ; m=12 ; n=25 ; PV=267750

FV = 267750/[(1-(1+(0.042/12)⁻¹²⁽²⁵⁾)/(0.042/12)]

FV = 1443.03

a)Her monthly payment is RM 1443.03

b) Interest charged = final amount paid - principal

= (1443.03×300) - 267750

= 165195