A businessman wishes to borrow an amount of K4 million for a term of 3 years. The agreed rate of interest is 10% per annum effective for the first 2 years, and 6% per annum effective for the final year. Repayments on the loan are made annually in arrears. The amount of the level annual repayment is K1,590,328.58. (i) Draw up the loan schedule for the full three-year period. (ii) Calculate what percentage of the loan has been repaid by the end of year 2. (iii) Explain how this percentage figure would alter if the rate of interest had instead been 6% for the first two years and 10% for the final year.
A businessman wishes to borrow an amount of K4 million for a term of 3 years. The agreed rate of interest is 10% per annum effective for the first 2 years, and 6% per annum effective for the final year. Repayments on the loan are made annually in arrears. The amount of the level annual repayment is K1,590,328.58. (i) Draw up the loan schedule for the full three-year period. (ii) Calculate what percentage of the loan has been repaid by the end of year 2. (iii) Explain how this percentage figure would alter if the rate of interest had instead been 6% for the first two years and 10% for the final year.
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 K4 million for a term of 3 years.
The agreed rate of interest is 10% per annum effective for the first 2 years, and 6%
per annum effective for the final year.
Repayments on the loan are made annually in arrears.
The amount of the level annual repayment is K1,590,328.58.
(i) Draw up the loan schedule for the full three-year period.
(ii) Calculate what percentage of the loan has been repaid by the end of year 2.
(iii) Explain how this percentage figure would alter if the rate of interest had instead
been 6% for the first two years and 10% for the final year.
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