A businessman wishes to borrow an amount of K3 million for a term of 5 years. The agreed rate of interest is 5% per annum effective for the first 3 years, and 7% per annum effective thereafter. Repayments on the loan are made annually in arrears. (a) Find the amount of the level annual repayment. (2) (b) Draw up the loan schedule for the full five-year period. (3) (c) Calculate what percentage of the loan has been repaid by the end of year 3. (1) (d) Without doing any further calculations, explain how this percentage figure would alter if the rate of interest had instead been 7% for the first three years and 5% thereafter.
A businessman wishes to borrow an amount of K3 million for a term of 5 years. The agreed rate of interest is 5% per annum effective for the first 3 years, and 7% per annum effective thereafter. Repayments on the loan are made annually in arrears. (a) Find the amount of the level annual repayment. (2) (b) Draw up the loan schedule for the full five-year period. (3) (c) Calculate what percentage of the loan has been repaid by the end of year 3. (1) (d) Without doing any further calculations, explain how this percentage figure would alter if the rate of interest had instead been 7% for the first three years and 5% thereafter.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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. A businessman wishes to borrow an amount of K3 million for a term of 5 years. The agreed rate of interest is 5% per annum effective for the first 3 years, and 7% per annum effective thereafter. Repayments on the loan are made annually in arrears.
(a) Find the amount of the level annual repayment. (2)
(b) Draw up the loan schedule for the full five-year period. (3)
(c) Calculate what percentage of the loan has been repaid by the end of year 3. (1)
(d) Without doing any further calculations, explain how this percentage figure would alter if the rate of interest had instead been 7% for the first three years and 5% thereafter.
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