Use the example above and fill in the missing values. Consider a three-year loan (so we'll assume the numbers 1 through 36) for $5,000 with interest at 10% per year. Using
standard amortization, the monthly payment is $161.33. In this example, we will not worry about exact or ordinary interest
because the total interest to be paid is $808.13.
After the fifth month, the borrower decides to prepay the whole loan. Under a standard amortization plan the borrower
would have paid $198.28 In cumulative Interest. However, using the Rule of 78 a lender would calculate the fraction of
the total interest based on two series:
(n+35}(n+34)+(n+33)+(n+32)+(n+31) (on)+(n+)+...+(n+35))
If you add 36, 35, 34, 33 and 32, the sum is
If you sum the numbers from 1 to 36, the sun is
The fraction (the first sum/ the total sum) to the nearest tenth - v % The lender will multiply this fraction by
the total interest.
The cumulative Interest = (the percentage calculated above) x ($808.13) = $
The difference between the amount paid under a standard amortization plan and the amount paid under a Rule of 78 plan is: $ ( )