APG Question #2 (Interest Rate)

The following is a good APGP practice question from AJC. Personally, I feel that its well set and tests students on their concepts and understanding.

Mary has a monthly income of 4,000. She is considering applying for a car loan of40,000 for 6 years which charges an interest rate of 3.00% per annum, compounded monthly. Interest is chargeable immediately when the loan sum is drawn out. The monthly repayment, latex m, is fixed throught out the loan tenure. <ol style="list-style-type: lower-roman;"> 	<li>Show that the calculated loan balance at the end of thelatex n^(th)loan month, after the monthly repayment is made, is given bylatex 40000(\frac {(401)}{400})^n-400m((\frac {401}{400})^n-1)$.

  • By legislation, banks can approve a car loan only if the monthly repayment does not exceed 15% of an applicant’s monthly income. Prove that Mary will not be able to apply for the car loan.
  • Do give it an attempt and see if you can show as required. Share with me if there are any doubts.

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