Question

MoneyFlows Bank Plc. provides you with a loan valued at K10, 000 and you agree to...

MoneyFlows Bank Plc. provides you with a loan valued at K10, 000 and you agree to repay the balance in 10 equal instalments, paid at the end of each period. The loan costs you 6% interest compounded semi-annually.
Required: (Round the answers to 2 decimal places)
i. Calculate the effective annual rate.
ii. Find the repayment to be made at the end of each period.
iii. Draw an amortization schedule for the first 3 periods.

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Homework Answers

Answer #1

i) Effective annual rate = [ 1 + ( 0.06/2) ] 2x1 -1

Effective annual rate = 6.09%

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2) Repayment at each period = 10,000 1 - [ 1 + (0.0609) ] -10 (0.0609)

Repayment at each period = $ 1,364.48

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iii)

Period Starting balance Periodic payment Interest Principal Remaining balance
1 10000 1364.48 609 755.48 9244.52
2 9244.52 1364.48 562.9913 801.488732 8443.03127
3 8443.031268 1364.48 514.1806 850.299396 7592.73187
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