Today is January 1, 2021. Jason borrows from Jessica $239,037 and agrees repay her by monthly installments. Payments will increase at a rate of 0.5% per month. The first payment of $1,000 is to be made exactly one month from today. However, after Jessica has worked out the time it will take for the entire loan to be repaid, she thinks it is too long. She proposes cutting the repayment time in half. Also, instead of growing payments, Jessica prefers a constant amount paid at the end of each quarter. The effective annual interest rate is 10%.
Today is January 1, 2021. Jason borrows from Jessica $239,037 and agrees repay her by monthly installments. Payments will increase at a rate of 0.5% per month. The first payment of $1,000 is to be made exactly one month from today. However, after Jessica has worked out the time it will take for the entire loan to be repaid, she thinks it is too long. She proposes cutting the repayment time in half. Also, instead of growing payments, Jessica prefers a constant amount paid at the end of each quarter. The effective annual interest rate is 10%.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
- How do I find how much time it takes Jason to repay the loan under his proposal?
- What is the amount Jessica prefers to receive at the end of each quarter under her new proposal, for 420 months?
- Finally how do I calculate the amount of interest Jason will have paid over the life of the loan?
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