Question

Construct an amortization schedule for a six-year, RM20,000 loan at 7% interest compounded annually

a) If the first payment is made one year from now.

Ans: P = RM 4,195.92

b) If the first payment is made immediately.

Ans: P = RM 3,921.42

Answer #1

(a) If the first payment is made from next year

Loan Amount = P = 20000

Let the amount paid annually be x

Interest Rate = r = 7% or 0.07

Tenure = n = 6 years

Hence, the sum of present value of annual payments must be equal to the value of the loan amount

=> X/(1+r) + X/(1+r)^{2} +....+ X/(1+r)^{N} =
P

=> X[1- (1+r)^{-N}]/r = P

=> X = rP(1+r)^{N}/[(1+r)^{N}-1]

=> X = 20000*( 0.07)*(1+ 0.07)^{6}/((1+
0.07)^{6}-1) = $4195.92

(b) if the first payment is made now

Loan Amount = P = 20000

Let the amount paid annually be x

Interest Rate = r = 7% or 0.07

Tenure = n = 6 years

Hence, the sum of present value of annual payments must be equal to the value of the loan amount

=> X + X/(1+r) + X/(1+r)^{2} +....+
X/(1+r)^{N-1} = P

=> X + X[1- (1+r)^{-(N-1)}]/r = P

=> X = rP(1+r)^{N-1}/[r(1+r)^{N-1} +
(1+r)^{N-1}-1] =
rP(1+r)^{N-1}/[(1+r)^{N}-1]

=> X = = 20000*( 0.07)*(1+ 0.07)^{5}/
[(1+0.07)^{6}-1] = $3921.42

RM60,000 is borrowed for 12 years at 5% compounded annually. The
borrower does not pay interest currently and will pay all accrued
interest at the end of 12 years together with the principal.
(a) Find the amount annual sinking fund deposit necessary to
liquidate the loan at the end of 12 years if the sinking fund earns
3% yearly compounding and the borrower make first payment
immediately.
(b) Prepared a sinking fund schedule.
Ans: (a) RM 7,371.25
(PLS DUN ANSWER...

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