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CT1 IAI May 2015 Q8(iii)

S

Sunit_K

Member
The question asks for the extra interest they are paying on the restructured loan as compared to the original loan.

In the solution, they have found the answer only for the remaining years as opposed to the whole loan term.
My understanding is, the question asks for the total difference. As Mr & Ms Jones would compare the total interest they are paying on the original loan to the new restructured loan.

Can anyone please clear this? It would also be helpful if one could be clear as when to use these two different methods.

Many thanks!
 
Sunit_K said:
The question asks for the extra interest they are paying on the restructured loan as compared to the original loan.

In the solution, they have found the answer only for the remaining years as opposed to the whole loan term.
My understanding is, the question asks for the total difference. As Mr & Ms Jones would compare the total interest they are paying on the original loan to the new restructured loan.

Can anyone please clear this? It would also be helpful if one could be clear as when to use these two different methods.

Many thanks!
Click to expand...
Kindly let us know the question so that we can be able to tell
 
Q8) A young couple, Mr. & Mrs. Jones took a personal loan for an amount of INR 20,000 to refurbish their home. The loan is being repaid with payments of INR 427.90 made monthly in arrears for 5 years.
However, the couple have been struggling to repay the loan for last few months, since Mr. Jones lost his job. After exactly one year, the loan company offers to help the couple by restructuring their loan with new monthly payments of INR 274.49 made in arrears.
iii)Mr. & Mrs. Jones’ initial reaction towards the restructured loan is positive, both in terms of the monthly repayment amount and the term of the loan. However, they are unsure if this may mean that they are paying too much as compared to the original loan. Calculate how much more interest in total the couple will pay on their restructured loan than on the original loan.
 
1st year is same under both arrangements. So it doesn't matter if you calculate the difference in interest paid in remaining term or over
the whole term.
 
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