Question

To repay a loan of $50,000 at 12% p.a. Ms. Yee agrees to make two equal-sized payments in oneyear and two years’ time, respectively. What is the size of each payment?

Answer 1

Given principal amount (P) = $50,000

Interest rate (r) = 12%

Time period (t) = 2 years

Annual payment to be made at end of each year can be calculated using the below formula

Annual payment = (0.12*50,000)/ (1- (1+0.12)^-2)

= 6000/ 0.2028= $29585.79882

So, the annual payment to be made at end of first and second year is $29,585.7988

Note: the annual payment here are equal sized payment to be made in each year.

Note: Here all the values are rounded off to four decimals

Answer when rounded off to one decimal is $29,585.8