Question

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.

Answer 1

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

Effective annual rate = 6.09%

___________________________________________

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

Repayment at each period = $ 1,364.48

__________________________________________________

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