You just graduated from Engineering and have found a good job. However, fifteen (15) months ago you found yourself in a financial difficulty and had to borrow $3,000 from a high lending company (a “loan shark”) who charged 18%, compounded monthly for the loan. You agreed to pay off the loan and have found out that, due to your improved credit rating, your local bank has offered to lend you the money to pay off your remaining balance of the original loan plus any penalty that may be charged for early repayment of that loan. The bank would only charge a rate of 6% compounded monthly.
a) What is the current monthly payment for your original $3,000 loan?
b) What was the amount of interest and principal paid with your 15th payment?
c) What would be the total amount of the new loan if you accepted the bank’s offer, the early repayment penalty was $300 and you paid the new loan off in the remaining 45 months of the original 60-month loan period. How much better off would you be in present worth terms at this time compared to continuing with the original loan repayment plan