A loan of $100,000 is made today. This loan will be repaid by 10 level repayments, followed by a final smaller repayment, i.e., there are 11 repayments in total.
The first of the level repayments will occur exactly 2 years from today, and each subsequent repayment (including the final smaller repayment) will occur exactly 1 year after the previous repayment. Explicitly, the final repayment will occur exactly 12 years from today.
If the interest being charged on this loan is 3.0% per annum compounded half-yearly, and the final smaller repayment is $310,
(a) Calculate the loan outstanding exactly 1 year from today.
(b) Calculate the loan outstanding exactly 11 years from today.
(c) Calculate the amount of the level repayments.
i.e. the loan outstanding after 1 year will be $100,000
Firstly, here the interest is compounded semiannually while the payment is made annually. So we need to calculate the effective annual interest rate for annual repayment
Effective annual interest rate= (1+ r/n)^n -1
So, EAR= (1+3%/2)^2 -1
= 0.030225 or 3.0225%
Now,
Payment = r*(PV)/ 1-(1+r)^(-n)
PV= 100000
r= 3.0225%
N= 10
= (100000*3.0225%)/(1-(1+0.030225)^(-10))
= 11,736.52
So the level payment= $11726.17
Get Answers For Free
Most questions answered within 1 hours.