Please help! (1 Viewer)

[honky tonk]

I've been stuck on this question for hours! Can someone please help? It's an annuity question:

Will and Penny take out a loan of $120,000 over 20 years at 7.25% pa interest compounding monthly. Their repayment is $949 per month. After 3 years of repaying the loan, Will wins $30,000. They pay this amount off their loan.

 (a) How long will it now take to repay the loan?
 (b) Calculate the total amount that would have been paid without the lump sum.
 (c) How much is saved by making the lump sum payment?

I don't even know if this should involve the future value, present value or even the compound interest formula!?

*sob*

 

[connie]

ok yeh this does seem quite hard (but then this is my worse topic), where did the question come from?

ok well a really long way to work it out, but it should be right is to draw a table as such

Month 1 120 000 725 949
Month 2 119 776 724 949
Month 3 119 551 722 949


and so on until you've done 240 months, then go back to the 36th month and adjust the amount owing by taking away 30 000 and recalculate the whole thing and see how many years difference well thats jus for a)


so obviously this is gonna take you another couple of hours, is it really worth it to answer one question?

give me a couple more hours and i will think of an easier way to do it!

 

[Rahul]

connie, you have to use the formula. i'm not sure which one, but do not do it manually. you will be much better off leaving it if you cant apply the formula and focusing on the rest of the paper.

 

[connie]

hey you could get the answer by drawing up a table, sure it will take FOREVER but you will get the answer

i have no intentions of doing it personally, but hey if i was determined to get the answer i would

 

[honky tonk]

Originally posted by connie
ok yeh this does seem quite hard (but then this is my worse topic), where did the question come from?

It's my worst topic too. It came from my textbook (Insight General Mathematics) and it's one of the concluding questions of the chapter. We apparently learnt this in the middle of the year..

 

[connie]

ok i've figured out b) it was actually really easy once you stop thinking how hard it is

solution:
total amount paid = monthly repayment x number of months
= 949 x 240
= 227 760

 

[connie]

i rang the hsc advice line and asked the guy the question, he must be the BIGGEST DUMBARSE i've ever encountered, firstly all i could hear was him breathing into the phone, after i became accustomed to that i sat there for half an hour listening to him trying to work it out without even converting the interest rate to monthly... then when he thinks he got the answer he goes "ok you have to use logs" -sorry buddy but thats not part of the general course, so after another half an hour of trying to work it out he eventually asks for my phone number and tells me he'll ring back... too baaaad im on the net now :>

 

[connie]

ok and heres what i think the answer should be:

7.25 /12 = 0.604166666/100 = 0.00604166
therefore monthly interest rate =0.00604 (rounded)

amount borrowed = 120 000
total repaid = 949 x (20 x 12)
= 227 760

therefore total interest paid over 20 years = 107 760
therefore total interest paid for 1 month = 449
then interest paid on 3 years = 16 164


so if then loan is 120 000 then after three years really the loan is 120 000 + 16 164 in interest

but if we minus 3 years of repayments the loan becomes 102 000
if we then minus the 30 000 will wins, the amount owing is
72 000


ok so now we can use the guess + check method to see how many years it will takes and we get like ........ok i have no idea that all went completely wrong! can someone please explain how to answer this question, its bugging me that i dont know how!

 

[Lundy]

are the answers in the back of the book? I'm working on it, but I'm not sure if i'm on the right track or not

 

[honky tonk]

Answers

Answers are as followed:

 (a) 13 years, 1 month
 (b) $227,760
 (c) $49,716 ($79,716 - $30,000)

 

[Lundy]

Ok...I was waaayyyy off track. this question is shocking

 

[honky tonk]

Originally posted by Lundy
Ok...I was waaayyyy off track. this question is shocking

I know what you mean.. I can't wait until Monday, I'm gonna be racing up to my Maths teacher and begging for help! Knowing my luck, she'll either show me a simple 5-second way to do it, or tell me I don't need to know it.

 

[Benno]

lol yeah i hate it when u get told u dont need to know it and uve been worrying about it for a week! i was like "then why the fuck is it in there for!!!"

 

[connie]

ok the hsc advice line man rang me back, apparently i was right in my first assumption, you have to do a table, but only for the first 36 months, you will then know how much is left owing, minus the 30 000 from how much is owing and use the guess + check method to work out how long... personally i wouldnt bother

 

[honky tonk]

Originally posted by connie
ok the hsc advice line man rang me back, apparently i was right in my first assumption, you have to do a table, but only for the first 36 months, you will then know how much is left owing, minus the 30 000 from how much is owing and use the guess + check method to work out how long... personally i wouldnt bother

Make a table with 36 rows?! Ok, that doesn't sound like a HSC question, so I won't panic about it.

 

[Lazarus]

It's the type of question you'd get in the other 2u maths course...