If a borrower can afford to repay a home loan by making 300 monthly payments of R986.33, how much can be borrowed at 18% per annum compounded monthly?
To calculate how much can be borrowed, we first need to calculate the present value of 300 monthly payments of R986.33 at an interest rate of 18% per annum compounded monthly.
The formula to calculate the present value of a series of equal payments is:
PV = PMT * [(1 - (1 + r)^-n) / r]
Where:
PV = present value
PMT = monthly payment amount (R986.33)
r = monthly interest rate (18%/12 = 1.5% or 0.015)
n = number of payments (300)
PV = 986.33 * [(1 - (1 + 0.015)^-300) / 0.015]
PV = 986.33 * [(1 - 0.24029) / 0.015]
PV = 986.33 * (0.75971 / 0.015)
PV = 986.33 * 50.6473
PV = R49,980.26
Therefore, the maximum amount that can be borrowed at 18% per annum compounded monthly is R49,980.26.