Question

A loan of $100,000 is to be repaid by two equal repayments of X. One repayment is due at the end of 2 years, the second repayment is due at the end of 6 years. The interest rate is at 4% p.a. compounded quarterly for the first 3 years and then 4.4% p.a. compounded quarterly thereafter. What is the size of each repayment?

a. $57,989.46

b. $56,779.19

c. $58,222.14

d. $58,762.97

Answer 1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

First payment is due after 2 years, rate is 4%

we have to find present value for 2 years

PV = FV/(1+r/m)^mn = X /(1+0.04/4)^(2 x 4) = now see image

m= 4 = quarterly compounding, n= 2.

now second payment is after 6 years

there are 2 rates : 4% for first 3 years, then 4.4% for next 3 years, same way we will apply rule, see image