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Aug 21, 2018
 #3
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+2

OK, young person! I shall attempt to solve it for you but may charge you for it!! Just joking!.


First, you should be familiar with this complicated-looking formula, but in fact, it is just PV and FV formulas combined into one. If you know any 4 of the 5 variables, then you can solve for the fifth, except for interest rate!:


-P*[(1-(1+R)^-N)/(R)]+FV*(1+(R))^-N+PV=0, where P = Periodic payment, R= Interest Rate per period, N= Number of periods, FV = Future value, PV = Present value.
So, the first thing we have to do is figure out the original monthly payments for the two separate loans:


1 - From the first loan of $15,000, you enter the following values into the above formula: 6%/12 =0.005 under R, 60 under N, 0 under FV, 15,000 under PV. Then you would solve for P. If you don't make any mistakes, then you should get P = $289.99, which is the monthly on the $15,000 loan. Because he has already made 12 monthly payments, we have to find the balance of this particular loan. You would use the above formula again, but this time you would enter 12 under N and $289.99 under P and you would solve for FV, which would be the balance of the loan after 12 payments. If you don't make any mistakes, you should get: $12,347.98.


2 - For the second loan of $10,000, you would do exactly the same thing as above entering your numbers accurately. If you don't make any mistakes, you should get the monthly payment to be: $295.24 and the remaining balance after 12 payments to be: $6,798.86.


3 - Now, you must add the balance of the two loans and you get: $12,347.98 + $6,798.86 = $19,146.84 - which is the balance of the new consolidated loan!. You do the same with the two original monthly payments: $289.99 + $295.24 = $585.23 - which is the new combined monthly payment on the new consolidated loan for a term of 3 years.


4 - Finally, you have to enter the new loan of $19,146.84 under PV, $585.23 under P, 36 (3 x 12) under N, and 0 under FV, and you would solve for R, or the monthly interest rate. Except, unfortunately, you can't solve for R directly but you have to use iteration and interpolation(basically, trial and error) until you arrive at the right solution.


5 - My computer is programmed to solve such equations and it comes out with the rate of 6.3160745455% compounded monthly. So, the effective annual cost to him would be 6.502162744568%. And that is the END!.

Aug 21, 2018
 #3
avatar+1242 
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Aug 21, 2018
 #3
avatar+9465 
+2
Aug 21, 2018
 #4
avatar+1242 
+1
Aug 21, 2018

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