Question

Five years ago you borrowed $250,000 for a ten-year period at a fixed interest rate of 9% p.a. with interest compounded on an annual basis. You have been making regular annual payments on your loan and you now wish to repay the amount outstanding on this loan in full. The total amount you need to repay today is closest to:

$151,521.

$168,850.

$194,775.

$217,051.

Answer 1

First we need to find the annual payment using PMT function in EXCEL

=PMT(rate,nper,pv,fv,type)

rate=9%

nper=10 years

pv=250000

fv=0

=PMT(9%,10,-250000,0,0)=$38,955.02

PMT=Annual payment=$38,955.02

Now construct an Amortization schedule and given formula also in the table

Periods	Opening Balance	Annual payment	Interest amount=(Opening Balance*9%)	Principal amount=Annual payment-Interest	Ending Balance=Opening Balance-Principal
1	250000.00	38955.02	22500.00	16455.02	233544.98
2	233544.98	38955.02	21019.05	17935.97	215609.00
3	215609.00	38955.02	19404.81	19550.21	196058.79
4	196058.79	38955.02	17645.29	21309.73	174749.06
5	174749.06	38955.02	15727.42	23227.61	151521.45

The outstanding amount after 5 years=$151,521.45

Option A is correct