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    EMI Calculations

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    During the course of your education, you have borrowed $65,000 in student loans. You plan to make monthly payments in order to repay the debt. The interest rate is fixed at 6.8% APR (compounding is monthly).

    a. If the loan is for 10 years, find the monthly payment.
    b. Right after your 38th payment, you get a huge bonus and decide to pay off the loan. How much do you still owe?
    c. Find the effective rate on the loan.

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    Solution Preview

    a. If the loan is for 10 years, find the monthly payment.
    Loan Tenure=n=10*12=120 months
    Interest rate per period=6.8%/12=0.56667%
    PV of loan=$65000
    Monthly Payment=R=?
    We know that PV of an ordinary annuity is given by
    PV= ...

    Solution Summary

    Solution describes the steps to estimate the monthly repayment amount of the given loan. It also calculates principal left after 38th payment and effective rate on the loan. All calculations are carried out with the help of suitable formulas.