Formula for banking *HELP*

[JonSack]

Hi, I would be very greatful if you can help me solve this enigma.

Suppose I am a bank and I am giving out a loan of 1000$ at 10% interest rate per year for 1 year. Each month the person who took the loan is giving me 8,33$ (100$/12 months), suppose these proceeds finance another loan. Each month when I get the payments of my borrowers I use them to give out another loan.

In other words, monthly payment of loan 1 is going towards giving out loan 2, monthly payments from loan 1+2 is going to give out loan 3 and etc..


What is the formula in order to make an expectation of what will be the future amount?



Thank you

 

[stapel]

Suppose I am a bank and I am giving out a loan of 1000$ at 10% interest rate per year for 1 year. Each month the person who took the loan is giving me 8,33$ (100$/12 months), suppose these proceeds finance another loan. Each month when I get the payments of my borrowers I use them to give out another loan.

In other words, monthly payment of loan 1 is going towards giving out loan 2, monthly payments from loan 1+2 is going to give out loan 3 and etc..

What is the formula in order to make an expectation of what will be the future amount?

"The future amount" at what point in time? "Another loan" under what terms?

Please reply with the full and exact text of the exercise, along with whatever formula(s) or algorithm(s) they've given you for this sort of homework question. Thank you!

 

[JonSack]

"The future amount" at what point in time? "Another loan" under what terms?

Please reply with the full and exact text of the exercise, along with whatever formula(s) or algorithm(s) they've given you for this sort of homework question. Thank you!

This is not from a text book, but a real life situation. I friend of mine is starting a loan company.

I am a bank and the interest rate I charge for borrowing is fixed, 10% lets say. The amounts I give out could be 1000$, 2000$, 3000$ or simply x. (Only the interest rate I charge is fixed)

Assume I am a bank and I want to keep going on forever, no stopping. Every payment I get from a loan, I give it out for another loan and etc... (In business terms, keeps rolling)

The duration of my loans could be 1 year, 2 years, or simply n. (If you can make it simple, try to solve it with just 1 year) All loans I give out are 1 year term.

I want to know how much will I have in the market after lets say 10 years. The money will not be with me, since each payment I get from the borrowers is giving out as another loan to a new person and etc...

Thanks

 

[Deleted member 4993]

Hi, I would be very greatful if you can help me solve this enigma.

Suppose I am a bank and I am giving out a loan of 1000$ at 10% interest rate per year for 1 year. Each month the person who took the loan is giving me 8,33$ (100$/12 months), suppose these proceeds finance another loan. Each month when I get the payments of my borrowers I use them to give out another loan.

In other words, monthly payment of loan 1 is going towards giving out loan 2, monthly payments from loan 1+2 is going to give out loan 3 and etc..


What is the formula in order to make an expectation of what will be the future amount?



Thank you

The payment for the above loan should be $87.92 - not $8.33

 

[JonSack]

The payment for the above loan should be $87.92 - not $8.33

Each month my borrowers pay me an amount that is composed of 2 parts: the principal + my gain. In this case my gain is 8.33$ per month and my principal is 83.33 per month. (1100/12=91.66)


I think the answer should be an exponential function. Please help

 

[JonSack]

WHAT??!! If you're not declaring 17.96% as true annual rate, then you're a crook :cool:

Putting 1000 bucks in your borrower's hands and asking him to pay back 91.66 for
12 months, then he's paid off in full, is an annual rate of 17.96% cpd. monthly,
no matter how you cook it.

Don't believe me? Try it:

P = Ai / [1 - 1/(1+i)^n] : no need to explain; you're a banker!
A = 1000, I = .1796/12, n = 12

P = 91.66

Sorry I didnt understand the formula, P= A times i?? over 1 -1 divided etc..... From where did u get this? Can you please explain more