Question

A loan of $100,000 is made today. This loan will be repaid by 10 level repayments,...

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.

Homework Answers

Answer #1
  1. As the loan will be paid starting from 2 year from now, the loan outstanding after 1 year will be equal to the loan today,

i.e. the loan outstanding after 1 year will be $100,000

  1. The smaller payment is the last payment of the loan, that implies that after that payment the loan will be repaid, so that means, the loan outstanding before that period will be $310. So the loan outstanding at the end of 11th year is $310.
  2. To calculate the level payment,

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

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A loan of $1,000,000 is made today. The interest being charged on this loan is 6%...
A loan of $1,000,000 is made today. The interest being charged on this loan is 6% p.a. The borrower will make 30 level repayments followed by a final smaller repayment (i.e., there are 31 repayments in total.). The first of the level repayments will occur 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 30 years from today. (a) Calculate the size of...
A loan of $100,000 is made today. The borrower will make equal repayments of $1231 per...
A loan of $100,000 is made today. The borrower will make equal repayments of $1231 per month with the first payment being exactly one month from today. The interest being charged on this loan is constant (but unknown). For the following two scenarios, calculate the interest rate being charged on this loan, expressed as a nominal annual rate compounding monthly. Give your answer as a percentage to 2 decimal places. (a) The loan is fully repaid exactly after 180 monthly...
A loan of $100,000 is made today. The borrower will make equal repayments of $818 per...
A loan of $100,000 is made today. The borrower will make equal repayments of $818 per month with the first payment being exactly one month from today. The interest being charged on this loan is constant (but unknown). For the following two scenarios, calculate the interest rate being charged on this loan, expressed as a nominal annual rate in percentage. Give your answer as a percentage to 2 decimal places. (a) The loan is fully repaid exactly after 240 monthly...
Gerald has taken out a loan of $100,000 today to start a business. He has agreed...
Gerald has taken out a loan of $100,000 today to start a business. He has agreed to repay the loan on the following terms: • Repayments will be made on a monthly basis. The first repayment will be made exactly one month from today. • The repayments for the first 5 years will cover interest only to help reduce the financial burden for Gerald's business at the start. • After the 5-year interest-only period, Gerald will make level monthly payments...
Gerald has taken out a loan of $100,000 today to start a business. He has agreed...
Gerald has taken out a loan of $100,000 today to start a business. He has agreed to repay the loan on the following terms: • Repayments will be made on a monthly basis. The first repayment will be made exactly one month from today. • The repayments for the first 5 years will cover interest only to help reduce the financial burden for Gerald’s business at the start. • After the 5-year interest-only period, Gerald will make level monthly payments...
Gerald has taken out a loan of $100,000 today to start a business. He has agreed...
Gerald has taken out a loan of $100,000 today to start a business. He has agreed to repay the loan on the following terms: • Repayments will be made on a monthly basis. The first repayment will be made exactly one month from today. • The repayments for the first 5 years will cover interest only to help reduce the financial burden for Gerald’s business at the start. • After the 5-year interest-only period, Gerald will make level monthly payments...
A loan of $100,000 is to be repaid by two equal repayments of X. One repayment...
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
Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 5.7%...
Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 5.7% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate. Malorie will make monthly repayments over the next 10 years, the first of which is exactly one month from today. The bank calculates her current monthly repayments assuming the fixed interest rate of 5.7% will stay the same over the coming 10 years. (a) Calculate...
Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 4.4%...
Today, Malorie takes out a 10-year loan of $200,000, with a fixed interest rate of 4.4% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate. Malorie will make monthly repayments over the next 10 years, the first of which is exactly one month from today. The bank calculates her current monthly repayments assuming the fixed interest rate of 4.4% will stay the same over the coming 10 years. (a) Calculate...
Today, Malorie takes out a 20-year loan of $200,000, with a fixed interest rate of 5.0%...
Today, Malorie takes out a 20-year loan of $200,000, with a fixed interest rate of 5.0% per annum compounding monthly for the first 3 years. Afterwards, the loan will revert to the market interest rate. Malorie will make monthly repayments over the next 20 years, the first of which is exactly one month from today. The bank calculates her current monthly repayments assuming the fixed interest rate of 5.0% will stay the same over the coming 20 years. (c) Calculate...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT