At the end of 2-years,the loan is refinanced at j₄ = 4% and paid back over 3 more years.What is the new quarterly payment?

Question

Quizplus · Accepted Answer

The new quarterly payment can be calculated using the formula for the payment of an annuity: $PMT = \frac{PV \times i}{1 - (1 + i)^{-n}}$, where $PMT$ is the payment per period, $PV$ is the present value of the loan (or the amount refinanced), $i$ is the interest rate per period, and $n$ is the total number of payments. Given that the interest rate is 4% annually and payments are quarterly, the quarterly interest rate is $i = 4\% / 4 = 1\%$. For a 3-year loan with quarterly payments, $n = 3 \times 4 = 12$. Plugging these values into the formula gives the correct quarterly payment, which matches option B, $551.33.

At the End of 2-Years,the Loan Is Refinanced at J4

At the End of 2-Years,the Loan Is Refinanced at J₄