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:

A $151,521.

B $168,850.

C $194,775.

D $217,051.

Answer 1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

250000= Cash Flow*((1-(1+ 9/100)^-10)/(9/100))

Cash Flow = 38955

Using Calculator: press buttons "2ND"+"FV" then assign

PV =-250000

I/Y =9

N =10

FV = 0

CPT PMT

Using Excel

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

=PMT(9/(100),10,,250000,)

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 38955*((1-(1+ 9/100)^-5)/(9/100))

PV = 151521.4

Using Calculator: press buttons "2ND"+"FV" then assign

PMT =38955

I/Y =9

N =5

FV = 0

CPT PV

Using Excel

=PV(rate,nper,pmt,FV,type)

=PV(9/(100),5,,PV,)