John Took a Loan of $50,000 From a Bank at a Nominal Interest Rate – TIE2140 Engineering Economy Assignment #1, Singapore

Assignment Brief:

John took a loan of $50,000 from a bank at a nominal interest rate of 6% per year compounded monthly. The loan is to be repaid with 48 equal end-of-month payments.

(a) What is the effective annual interest rate of the loan?
(b) How much does John need to pay to the bank at the end of every month?
(c) John has just made the 18th monthly payment. How much does he still owe the bank?

(d) John has just made the 18th monthly payment. Suppose that he has just been recently promoted in his job and he wishes to fully settle the loan with just another 12 more equal monthly payments. How much is the new monthly payment assuming that there is no change in the interest rate charged by the bank?
(e) Mary also takes a loan of $50,000 from the bank. Because Mary can only afford to pay at most only $1,113 per month, the bank charges her higher interests at 12% per year compounded monthly. How many months does Mary need to pay back the loan?