1. A new office building was constructed 5 years ago by a consulting engineering firm. At the time the firm obtained the bank loan for P10,000,000 with a 20% annual interest rate, compounded quarterly. The terms of the loan called for equal quarterly payments for 10-year period with the right of prepayment at any time without penalty. Due to internal changes in the firm, it is now proposed to refinance the loan through an insurance company. The new loan is planned for 20- year term with an interest rate of 24% per annum, compounded quarterly. The insurance company has a one-time service charge of 5% of the balance. This new loan also calls for equal quarterly payments. (a) What is the balance due on the original mortgage (principal), if all payments have been made through a full five years? (b) What will be the difference between the equal quarterly payments in the existing arrangement and the revised proposal?

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ISBN:9780470458365
Author:Erwin Kreyszig
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1. A new office building was constructed 5 years ago by a consulting engineering firm. At the time
the firm obtained the bank loan for P10,000,000 with a 20% annual interest rate, compounded
quarterly. The terms of the loan called for equal quarterly payments for 10-year period with the
right of prepayment at any time without penalty. Due to internal changes in the firm, it is now
proposed to refinance the loan through an insurance company. The new loan is planned for 20-
year term with an interest rate of 24% per annum, compounded quarterly. The insurance
company has a one-time service charge of 5% of the balance. This new loan also calls for equal
quarterly payments.
(a) What is the balance due on the original mortgage (principal), if all payments have been
made through a full five years?
(b) What will be the difference between the equal quarterly payments in the existing
arrangement and the revised proposal?
Transcribed Image Text:1. A new office building was constructed 5 years ago by a consulting engineering firm. At the time the firm obtained the bank loan for P10,000,000 with a 20% annual interest rate, compounded quarterly. The terms of the loan called for equal quarterly payments for 10-year period with the right of prepayment at any time without penalty. Due to internal changes in the firm, it is now proposed to refinance the loan through an insurance company. The new loan is planned for 20- year term with an interest rate of 24% per annum, compounded quarterly. The insurance company has a one-time service charge of 5% of the balance. This new loan also calls for equal quarterly payments. (a) What is the balance due on the original mortgage (principal), if all payments have been made through a full five years? (b) What will be the difference between the equal quarterly payments in the existing arrangement and the revised proposal?
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