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I have a loan at a nominal annual interest rate compounded monthly $i^{(12)} = 12$% and is repaid with $120$ monthly payments starting one month after the loan. The monthly payments are $600$.

I am asked to find the i) loan first, ii) find the total interest paid, iii) find the interest paid in 10th payment and iv) the principal repaid in the 20th payment.

I was not sure if I calculated and used the right formulas. I calculated the loan by doing

$n = 120/12 = 10$ years

since the nominal interest $i^{(12)} = 12%$ then $i = 0.12/12 = 0.01$

Since there are $120$ monthly payments of $600$ dollars each, I did

$$\require{enclose} \begin{align} L = 600 a_{\enclose{actuarial}{10} i} = 600(1-(1/1.12)^{10}/0.01 = 40681.60 \end{align}$$

For the total interest: I took the monthly payments of $600$ dollars multiplied by the $120$ and subtract by the total loan found above to get $31318.40$

For finding the interest paid in 10th payment and the principal repaid in the 20th payment I wasn't sure if I did it correctly using the table form, i did

$$\begin{array}{c|c|c|c|c} \text{Period} & \text{End Payment} & \text{Interest repaid} & \text{Priniple repaid} & \text{Outstanding balance} \\ \hline 0 & 0 & 0 & 0 & 40681.60 \\ 1 & 600 & 406.81 & 193.184 & 40488.42 \\ 2 & 600 & 404.88 & 195.11 & 40293.30 \\ 3 & 600 & 402.93 & 197.06 & 40096.23 \\ \vdots & \vdots & \vdots & \vdots & \vdots \\ 10 & 600 & 386.60 & 213.39 & 38447.07 \\ \end{array}$$

I'm assuming towards the end of the 120th payment, the outstanding should be zero. I don't have a special program other than excel... and calculating a specific number of payments can be tedious. Is there a quicker way to calculate?

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  • $\begingroup$ What is your loan? $\endgroup$
    – callculus
    Mar 27 at 21:49
  • $\begingroup$ I can't figure out how to type the annuity symbol in MathJax. Anyway, you need the $a^{(12)}$ version. Basically, you've got $120$ payments at $1\%$ a month, so forget about the $10$ years and the $12\%$ $\endgroup$
    – saulspatz
    Mar 27 at 21:55
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As I said in a comment, the amount of the loan should be calculated as $$\require{enclose} L = 600 a^{(12)}_{\enclose{actuarial}{10} i} = 600\left(1-(1/1.01)^{120}\right)/0.01 = 41820.31 $$

You calculation of the total interest is correct. It's just the total payments less the amount of the loan.

The interest paid in the $10$ payment is $1\%$ of the amount of the loan outstanding after $9$ payments. Since there are then $111$ payments left, you do it it just as you calculated the amount of the loan, but with $111$ in the exponent instead of $120$.

For the amount of principal paid in the $20$ payment, calculate the amount of interest in the payment as above. The amount of principal in the payment is $600$ minus the amount of interest in the payment.

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  • $\begingroup$ ah, I forgot I am not using years but months. I also noticed that it is one month after so there shouldn't be any period 0. so for the 20th payment it will be 31514.43, but i want the principal repaid, so the 19th payment gives 31697.46. I take the difference to get 183.02. $\endgroup$
    – comp890
    Mar 27 at 23:11
  • $\begingroup$ @comp890 Yes, that's another way to do it, though I think the way I suggested is easier. $\endgroup$
    – saulspatz
    Mar 27 at 23:50

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