Calculate the final payment with simple interest
What is the size of the final payment with simple interest?
Given the loan payments and repayment schedule, how can we calculate the final payment?
The final payment is $2,943.63
The final payment size can be calculated by equating the present value of cash inflows and outflows using the 6% p.a. simple interest rate. This results in a final payment of $2,943.63.
When dealing with loan payments and repayment schedules with simple interest, it is crucial to understand the concept of the time value of money. In this scenario, we are given two loan payments: one due 98 days ago and another due today, totaling $6,250. These payments are scheduled to be repaid with a payment of $3,600 in 31 days and the balance in 129 days.
To calculate the final payment, we need to equate the present value (PV) of cash inflows and outflows using a 6% p.a. simple interest rate. The PV of the cash inflows amounts to approximately $6,618.47, while the PV of the first outflow is $3,674.84.
By setting the PV of cash inflows equal to the PV of cash outflows, we can solve for the unknown final payment, which is $2,943.63. This final payment will be due in 129 days from today.
Summary:Given the loan payments, repayment schedule, and a 6% p.a. simple interest rate, the final payment is calculated to be $2,943.63. Understanding the time value of money and simple interest is essential in determining the size of the final payment in such financial scenarios.