add 6.5% interest to $1000 loan, then divide it over 36 months, initial pymt $5; evenly increase pymts

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WinnersCreed

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We had a sub today and at the end of class he just had us write down this problem about percentages and it’s really hard for me. I think I’m stupid because I’m drawing a blank in figuring the assignment out. I need add 6.5 percent interest to a 1000 dollar “loan,” then I need to divide it over 36 months starting with an initial payment of 5 dollars, but on the last payment in month 36, the loan needs to be paid in full. The assignment is to evenly increase the payment over 36 months, starting with a payment of 5 dollars.
 
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One problem with the assignment - "evenly increase" is not well-defined. It's easier if the payment increases by a level percentage.

Name a few things:
i = 0.065 -- Annual Interest Rate
j = i/12 -- Monthly Interest Rate
v = 1/(1+j) -- Monthly Interest Discount

p = Initial Payment Amount = 5.00
t = % monthly increase for each payment.
r = (1+t) = % increase monthly accumulation factor.

Okay, you're ready to build it. I'll get you started... The present value, at loan origination, of the second payment is prv.
 
I forgot to mention the last payment at month 36 is suppose to be 43 dollars... that’s why it’s so hard.
 
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I emailed the sub because the problem is not in the text book and the samples in the book are short problems. And he said I have to “combine the rules from each chapter” ...I need help. My friends are stuck too and my other friend won’t share her answer. And her dad told her the answer because he works for Intel.
 
WinnersCreed said:
We had a sub today and at the end of class he just had us write down this problem about percentages and it’s really hard for me. I think I’m stupid because I’m drawing a blank in figuring the assignment out. I need add 6.5 percent interest to a 1000 dollar “loan,” then I need to divide it over 36 months starting with an initial payment of 5 dollars, but on the last payment in month 36, the loan needs to be paid in full. The assignment is to evenly increase the payment over 36 months, starting with a payment of 5 dollars.
........................................
I forgot to mention the last payment at month 36 is suppose to be 43 dollars... that’s why it’s so hard
Click to expand...
Sooooo.....if 1st payment = 5 and the increase is 1 dollar per month,
then 36th payment will be 5 + 35 = 40 ...... and you're saying it's exactly 43.....

This has gotta be some trick question....or the "sub" was drunk!

Are you presently studying "finance maths"?
Can you calculate a constant monthly payment given amount borrowed,
interest rate and number of payments?

What monthly payment is required to repay a $1000 loan,
over 12 months, at 1% per month interest rate?
 
WinnersCreed said:
I forgot to mention the last payment at month 36 is suppose to be 43 dollars... that’s why it’s so hard.
Click to expand...
$43 is no additional complication. Does that even work? 43-5 = 38, that's about $1 increase per month. 5*36 = 180, 1+2+3+...+35 = 630, Doesn't look like enough.

An additive increment of $1.52 is required to pay off the $1,000. That takes you all the way to over $53 on the last payment.
And additive increment of $1.09 will get you to $43, but leaves almost $300 to pay off.
The percentage increase version is worse. 6.3408% / month gets you to $43, but leaves over $500 to pay.
8.8983% / month will pay it off, but only by pushing the last payment up to $99.

The problem is not "hard", it is very poorly conceived or reported.
 
Here's an example of how it would look
if the loan amount was $997, 1st payment = $67,
payment increase = $4, interest rate = 1% per month,
over a period of 12 months:
Code: 
  N  PAYMENT  INTEREST  BALANCE
  0                      997.00
  1  -67.00      9.97    939.97
  2  -71.00      9.40    878.37
  3  -75.00      8.78    812.15
....
 11 -107.00      2.15    110.40
 12 -111.00      1.10       .50
Howevah, that's not quite what SUBby has in mind...I don't think!
 
I just read the thread title. I guess that discourages the additive increase theory.
 
Oh thank you so much for the responses, I am meeting my classmate to work on this today some more... yes I attend a Business magnet school. Our answers are pass/fail for being correct with extra credit to student that uses the least amount of steps and we fail if our math is wrong.

I was thinking id use an increasing integer to get me to easier numbers to work with and just calculate varying interest every month towards a rate that gets me to 43. And start with 5 dollars (I’ll fail for sure if the first payment is 67 dollars) I’m missing something with this monthly rate increase.

Thank you Denise, I think I need to do what you are suggestions, something similar. Not at an answer yet but I’ll keep trying. I need to work that 3 dollars over 36 months but how
 
Well, the condition "add 6.5 percent interest to a 1000 dollar loan" needs clarification.
Does that mean that each month, interest is calculated at rate .065/12 = ~.0054167?
If so, then owing after 1st month's payment of $5 is 1000 - 5 + 5.4167 = 1000.4167

The problem as you posted it is VERY unclear.
 
tkhunny said:
An additive increment of $1.52 is required to pay off the $1,000.
That takes you all the way to over $53 on the last payment.
Click to expand...
Agree with 1.52; I get 1.516
I get 58.06 as last payment.
 
Damn it, why do I keep fiddling around with this!!
A simpler (similar) case:
12 months, interest .01 per month, 1st pay't = 5, pay't increase = 3
Code: 
N    PAYMENT  INTEREST  BALANCE
0                        238.00
1    -5.00      2.38     235.38
2    -8.00      2.35     229.73
3   -11.00      2.30     221.03
......
10  -32.00      1.03      71.93
11  -35.00       .72      37.65
12  -38.00       .38        .03
As TK told you, the sum of the present value of each payment
needs to equal the amount borrowed.
So amount borrowed = 5/1.01^1 + 8/1.01^2 + ..... + 35/1.01^11 + 38/1.01^12 = ~238

Perhaps this will help you in your misery!

Once you know the answer and what that sub of yours meant,
could you come back and tell us....thank you!
 
Denis said:
If so, then owing after 1st month's payment of $5 is 1000 - 5 + 5.4167 = 1000.4167
Click to expand...
Denise this reminds me of those loans you took out decades ago. Still paying them off I bet.
 
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