Question

Jill borrows $300,000 for 10 years at a fixed interest rate of i % p.a (EAR). If the loan is repaid in 10 equal year-end payments over the 10 years, the amount of the loan outstanding at the end of the 5th year will be:

Answer 1

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Answer:

Annual payment formula is given as 300000*i/(1-1/(1+i)^10)
For finding the loan amount after the fifth year wee compute it as300000*(1+i)^5-300000*i/(1-1/(1+i)^10)/i*((1+i)^5-1)=300000((1+i)^5-1/(1-1/(1+i)^10)*((1+i)^5-1))

So, if interest rate is 0%, Loan after 5 years=150000
For the loans with interest rate as i% p.a (EAR) loan after 5 years is more than 150000