I am stuck on this question.
Imagine that you are going to borrow money. You decide to double the amount that you want to borrow. Should you double the payment if you wish to keep the same length of time to pay off the loan? Justify your reasoning with examples.
Yes, it is simple common sense. If you double the amount you borrow, then the payment will also double, provided that the term and the interest rate remain the same for both loans. Here are a couple of examples:
N=5*12; R=0.06/12;PV=5000; PMT=PV*R*((1 + R)^N) / ((1 + R)^(N) - 1)
;N=5*12; R=0.06/12;PV=10000; PMT=PV*R*((1 + R)^N) / ((1 + R)^(N) - 1)
LOAN PMT =$ 96.66 - on the 1st loan for $5,000
LOAN PMT =$ 193.33 - on the 2nd loan for $10,000.
