Question

john wants to apply for a loan, with a present annuity due value of $3,500,568.78 course herofrom a bank that charges 14.28 % interest per annum, compounded monthly. if he can only be able to pay back $43,367.21 per annum at the beginning of each year, when will john fully pay all of his debt to the bank?

Answer 1

The difference between what John pays and the debt increases over the years, so he will never be able to pay the loan with that annual amount.

Since John wants to apply for a loan, with a present annuity due value of $ 3,500,568.78, from a bank that charges 14.28% interest per annum, compounded monthly, if he can only be able to pay back $ 43,367.21 per annum at the beginning of each year, to determine when will John fully pay all of his debt to the bank, the following calculation must be performed:

• 43,367.21 x 5 = 216,836.05
• 3,500,568.78 x (1 + 0.1428 / 12) ^ (5x12) = 7,118,596.39
• 43,367.21 x 10 = 433,672.10
• 3,500,568.78 x (1 + 0.1428 / 12) ^ (10x12) = 14,476,051.66

Thus, as can be seen, the difference between what John pays and the debt increases over the years, so he will never be able to pay the loan with that annual amount.

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