Question

Calculate the net cash flow for each month for the following cash flows on a loan from two perspectives: (a) the borrower and (b) the bank.

MONTH Amount of Money Purpose
January $1000 Borrowed $1000 for 6 months from bank
February 100 Paid interest on loan balance to bank
March 100 Paid interest on load balance to bank
April 100 Paid interest on load balance to bank
April 500 Borrowed an additional $500 for 3 months
May 150 Paid interest on both loan balances to bank
June 150 Paid interest on both loan balances to bank
July 150 Paid interest on both loan balances to bank
July 1500 Repaid principal on both loans to bank

Answer 1

The borrower has a negative net cash flow overall, meaning they paid out more than they received.

Net Cash Flow for each month:

Borrower's Perspective:

Month Cash In Cash Out Net Cash Flow

January 1000 0 1000

February 0 100 -100

March 0 100 -100

April 500 100 400

May 0 150 -150

June 0 150 -150

July 0 150 -150

July 0 1500 -1500

Total 1500 2200 -700

Bank's Perspective:

Month Cash In Cash Out Net Cash Flow

January -1000 0 -1000

February 100 0 100

March 100 0 100

April 100 0 100

April 0 -500 -500

May 150 0 150

June 150 0 150

July 150 0 150

July 1500 0 1500

Total 2100 -500 1600

Notes:

The borrower has a negative net cash flow overall, meaning they paid out more than they received.

The bank has a positive net cash flow, meaning they received more than they paid out.

The calculations assume simple interest.