SOLUTION

Step 1: Write down the given information and the present value formula
P =
x[1 (1 +i)
n
]
i
x = 1446,91
i =
0,105
12
n = 1,5 12 = 18
Substitute the known values and determine P:
P =
1446,91

1 (1 +
0,105
12
)
18

0,105
12
= R 24 000,14
Therefore, Andre took out a student loan for R 24 000.
Step 2: Calculate the total amount of interest
At the end of the 18 month period:
Total amount repaid for loan: = R 1446,91 18
= R 26 044,38
Total amount of interest: = R 26 044,38 R 24 000
= R 2044,38
Worked example 9: Calculating the monthly payments
QUESTION
Hristo wants to buy a small wine farm worth R 8 500 000. He plans to sell his current
home for R 3 400 000 which he will use as a deposit for the purchase of the farm. He
secures a loan with HBP Bank with a repayment period of 10 years and an interest rate
of 9,5% compounded monthly.
1. Calculate his monthly repayments.
2. Determine how much interest Hristo will have paid on his loan by the end of the
10 years.
SOLUTION
Step 1: Write down the given information and the present value formula
P =
x[1 (1 +i)
n
]
i
121 Chapter 3. Finance