Part A:
1st month: Interest payable = 1% of $5,000 = $50.00
Amount paid in first month = $250 + $50.00 = $300
Unpaid balance = $5,000 - $250 = $4,750
2nd month: Interest payable = 1% of $4,750 = $47.50
Amount paid in second month = $250 + $47.50 = $297.50
Unpaid balance = $4,750 - $250 = $4,500
3rd month: Interest payable = 1% of $4,500 = $45.00
Amount paid in third month = $250 + $45.00 = $295.00
Unpaid balance = $4,500 - $250 = $4,250
4th month: Interest payable = 1% of $4,250 = $42.50
Amount paid in fouth month = $250 + $42.50 = $292.50
Unpaid balance = $4,250 - $250 = $4,000
5th month: Interest payable = 1% of $4,000 = $40.00
Amount paid in fifth month = $250 + $40.00 = $290.00
Unpaid balance = $4,000 - $250 = $3,750
6th month: Interest payable = 1% of $3,750 = $37.50
Amount paid in sixth month = $250 + $37.50 = $287.50
Unpaid balance = $3,750 - $250 = $3,500
7th month: Interest payable = 1% of $3,500 = $35.00
Amount paid in seventh month = $250 + $35.00 = $285.00
Unpaid balance = $3,500 - $250 = $3,250
8th month: Interest payable = 1% of $3,250 = $32.50
Amount paid in eighth month = $250 + $32.50 = $282.50
Unpaid balance = $3,250 - $250 = $3,000
9th month: Interest payable = 1% of $3,000 = $30.00
Amount paid in ninth month = $250 + $30.00 = $280.00
Unpaid balance = $3,000 - $250 = $2,750
10th month: Interest payable = 1% of $2,750 = $27.50
Amount paid in fouth month = $250 + $27.50 = $277.50
Unpaid balance = $2,750 - $250 = $2,500
11th month: Interest payable = 1% of $2,500 = $25.00
Amount paid in seventh month = $250 + $25.00 = $275.00
Unpaid balance = $2,500 - $250 = $2,250
12th month: Interest payable = 1% of $2,250 = $22.50
Amount paid in eighth month = $250 + $22.50 = $272.50
Unpaid balance = $2,250 - $250 = $2,000
Part B:
Number of payments = 5000 / 250 = 20
Total amount of interest = 50 + 47.5 + 45 + . . . + upto the 20th payment.
This is an arithmetic sequence with the first term as 50, common difference as -2.5 and number of terms = 20.
Sum of the first 20th term of the GP is given by
![S_n= \frac{20}{2}[2(50)+(20-1)(-2.5)] \\ \\ =10(100-2.5(19))=10(100-47.5) \\ \\ =10(52.5)=\$525.00](https://tex.z-dn.net/?f=S_n%3D%20%5Cfrac%7B20%7D%7B2%7D%5B2%2850%29%2B%2820-1%29%28-2.5%29%5D%20%5C%5C%20%20%5C%5C%20%3D10%28100-2.5%2819%29%29%3D10%28100-47.5%29%20%5C%5C%20%20%5C%5C%20%3D10%2852.5%29%3D%5C%24525.00)
Therefore, the <span>total amount of interest paid over the term of the loan is $525.00</span>
