Question

Fred loans Gail $10,000 at a nominal discount rate of 6% convertible monthly. Fred will make 3 payments to repay the loan: $5000 at the end of the 3^rd year, $4,000 at the end of the 6^th year and the balance at the end of the 9^th year.

Calculate Fred’s final payment. Options are in $ and are 5190, 5040, 5110, 4950, or 1000

Answer 1

Solution

Answer-5190

Present value=Cashflow/(1+r)^n

whwre r-intrest rate per period=6/12=.5% per month

n-period of cashflow

Present value of loan=10000

Thus

10000=Cashflow at end of third year/(1+r)^36+Cashflow at end of sixth year/(1+)^72+Cashflow at end of 9th year/(1+r)^108

10000=5000/(1+.005)^36+4000/(1+.005)^72+Cashflow at end of 9th year/(1+.005)^108

10000=6971.434+Cashflow at end of 9th year/(1+.005)^108

Solving we get Cashflow at end of 9th year=5190.051

Thus correct answer is 5190

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