On January 15, business man Ronald Rump takes out a $550,000 loan at 7.5% annual
ID: 3030486 • Letter: O
Question
On January 15, business man Ronald Rump takes out a $550,000 loan at 7.5% annual interest. The maturity date (the day RR has to pay off the loan) is October 1st.
1. How much will Ronald have to pay on October 1st?
- Suppose instead of paying off the entire loan on October 1st, RR decides to pay $100,000 on May 1st, and $150,000 on August 1st.
a. How much interest did RR pay on May 1st?
b. How much of Ronald Rumps’ $100,000 payment went to pay off the principal, $550,000?
c. What is the new principal (or how much more does RR have to pay)?
d. How much interest did RR pay on August 1st.
e. How much of Ronald Rumps’ $150,000 payment went to pay off the principal?
f. What is the new principal (or how much more does RR have to pay)?
g. How much does owe on October 1st?
h. How much of Ronald Rumps’ final payment went to pay off the principal?
i. What is the total amount of money RR paid for the loan?
j. How much did he save by making the two partial payments. You are to prepare a report for your boss, Mr. Rump. This assignment must be neatly done, preferably as a word document. You must label what you are doing and show a significant amount of work. All answers must be in a sentence.
Explanation / Answer
On January 15 $550,000 loan at 7.5% annual interest.
1) On Oct 1 : No. of days = 260 days
Simple Interest( SI) = P*r*t/100 = 550,000*0.075*260/365*100
= $293.84
On Oct1 he has to pay = 550,000 +293.84 = $ 550293.84
a) S.I on 1 May :
No. of days = 107 on May1
So, S.I. = (550,000*0.075*107)/365*100
= $ 120.92
b) Out of $ 1,00,000 , $120.92 is interest , remaining is principal
So, Principal paid from total = 100000- 120.92 = $ 99879.08
c) New Principal on 1st may = 550,000 - 99879.08 = $ 450120.92
d) Between 1 May and 1 Aug , no. of days = 92
So, Interest on 1 aug on $ 450120.92 = 450120.92*0.075*92/365*100
= $ 85.09
e) Out of $ 150,000 , amt paid as principal = $ 150,000 - $ 85.09 = $149914.91