Question

A debt of $11,000 with interest at 8.1%p.a compounding quarterly is to be repaid with 9 equal end-of-quarter payments.

How much interest is in the final instalment?

(Hint use excel: You can either:

-       First calculate the loan outstanding at the beginning of the last quarter. The interest can then be calculated as if you were setting up a loan repayment schedule for the final quarter.

-       Use IPMT function)

Answer 1

Calculation of Interest in the final installment :

Using IPMT function of Excel :

=IPMT(rate,per,nper,pv,fv,type)

where rate is the rate of interest per period i.e 8.1% / 4 = 2.025% (Divided by 4 as compounded quarterly)

per is the period for which interest is to be calculated i.e 9

nper is the total number of payments i.e 9

Present value is the amount borrowed i.e 11000

fv is the future value of payment i.e 0

type is 0 as payments are made at the end of quarter

=IPMT(2.025%,9,9,-11000,0,0)

On solving Interest paid in last installment is 26.78.