Answered Essay: A person took a loan of $1000 to be paid in four payments. The first payment is due at the end of the 3rd month

A person took a loan of $1000 to be paid in four payments. The first payment is due at the end of the 3rd month. The second payment is 2 times the first payment and is due at the end of the 6th month. The third payment is 3 times the first payment and is due at the end of the 9th month, and the final payment is due at the end of the 12th month, and is 4 times the first payment. Calculate the amount ofpyment that will be done using the simple interest rate of8%pa and the focal date of a. 6th month b. 12th month [12 marks THE END

A person took a loan of $1000 to be paid in four payments. The first payment is due at the end of the 3rd month. The second payment is 2 times the first payment and is due at the end of the 6th month. The third payment is 3 times the first payment and is due at the end of the 9th month, and the final payment is due at the end of the 12th month, and is 4 times the first payment. Calculate the amount of payment that will be done using the simple interest rate of8%pa and the focal date of: a. 6th month b. 12th month

Expert Answer

 

The total loan amount to be paid back in 12 months along with interest = $1000 + ($1000*8%) = $1080
Let us assume ne first payment after 3 months be x.
Hence, 2nd Installment = 2x, 3rd Installment = 3x and Final payment = 4x
We can derive the following equation to find out the value of x.
$1080 = x + 2x + 3x + 4x
$1080 = 10x
x = $108
6th month payment = 2x = 2 * $108 = $216
12th month payment = 4x = 4*$108 = $432
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