Question

A $20,000 loan with interest at 3.5% is being repaid by 35 level annual payments. The first payment is due one year after the loan is issued. Beginning with the seventeenth payment, the borrower is permitted to pay only one-third the normal annual payment. After the twelfth reduced payment, the loan is renegotiated. The revised level payment P will yield the lender 4% per year over the remaining seven years. Find P.

Answer 1

To find EMI (P) we know that the yearly EMI for the loan of $20000 for 35 years at an interest of 3.5% is $992 per year.

Therefore upon calculating the loan after the seventeenth year we have $19252

The EMI calculated after the one-third permitted on the seventeenth payment is, therefore: $992*1/3= 992/3=$330

Therefore, the balance calculated after the twenty-seventh instalment = $6150

Therefore the yearly EMI (P) for the loan of $6150 at 4% for the remaining eight years is $900 per year.

Step-by-step explanation:

To find EMI (P) we know that the yearly EMI for the loan of $20000 for 35 years at an interest of 3.5% is $992 per year.

Therefore upon calculating the loan after the seventeenth year we have $19252

The EMI calculated after the one-third permitted on the seventeenth payment is, therefore: $992*1/3= 992/3=$330

Therefore, the balance calculated after the twenty-seventh instalment = $6150

Therefore the yearly EMI (P) for the loan of $6150 at 4% for the remaining eight years is $900 per year.