i have a loan for 2000.00 at 5% simple interest on a declining balance. i am making 2 equal payments over 1 year. what will my payments be?

Question

the payments would be in january and in july. I know 1 years simple interest is 100. so my total is 2100, but i'm not sure how the declining balance figures in.

Answer 1

Declining balance means that with each successive payment, more of the payment is applied towards the principle than the interest.

 

The payments can be calculated using this formula

 

EMI = P*i/(1-(1+i)^-n)

 

Where

 

EMI is the payment amount

P is the principle (loan amount)

i is the interest rate per period and 

i  = r*l

r = interest rate

l = length of each period

 

In this case

P = 2000.00

r = .05

l = 6/12 (1 payment per 6 months)

i = r*l =  0.025
n = 2 (the total number of periods in the loan)

 

Substituting into the equation

 

EMI = 2000*0.025/(1-(1+0.025)^-2) = 1037.7