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Oct 9, 2016
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Calum's car was written off as a result of hail damage in a sudden and severe local storm. His interstate cousin Jessica also had to replace her car after flood damage. Both needed to borrow the same amount of money. Calum was able to get a flat rate loan at 10% p.a. for 8 years. Jessica will end up paying the same amount of interest as Calum but her loan has a simple interest rate between 10% and 20% p.a. and will need to be repaid over a shorter period of time. Find possible values for the interest rate and period of Jessica's loan. Pls help me.

 

Your question is all confused.

When you borrow money, the most important thing to know is:"How much money are you borrowing?". You state nothing about that!. So, will just have to assume a certain amount to replace their cars:

Will assume that both of them will borrow $25,000.

In the case of Calum, the accurate way of paying off this loan is to break it into regular monthly payments, which will be =$379.35 per month. He will pay this each and every month for 8 years or 96 months. So, the total interest that he will pay will be=($379.35 x 96 - $25,000 =$11,417.60.)

 

In the case of Jessica, since she has to pay the same amount of interest, she can spread it over a period of 3 years, paying =$11,417.60 / 3 =$3,805.87 per year, or $3,805.87 / 12=$317.16 per month. This works out to be about 15.22% simple interest per year. But, in addition to the interest payment, she has to pay $694.44 per month in principal, so that her total monthly payment will be:

$694.44 + $317.16 =$1,011.60 per month in pricipal plus interest, which would be quite expensive for her carry for 3 years. This is only ONE scenario. You could try 4 or 5 years and see what figures you get, if you understood all this.

Oct 9, 2016

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