A loan is to be repaid by an annuity payable monthly in arrears over a 5-year period. The annuity starts at a rate of £200 per month and increases each month by £5. Repayments are calculated using a rate of interest of 8% per annum effective. (i) Calculate the amount of the original loan to the nearest £. (ii) (iii) Calculate the capital outstanding at the end of the first year (after the payment due has been made) to the nearest £0.01. Hence, or otherwise, calculate the capital and interest components of the 13th and 14th payments.

A loan is to be repaid by an annuity payable monthly in arrears over a 5-year period. The annuity starts at a rate of £200 per month and increases each month by £5. Repayments are calculated using a rate of interest of 8% per annum effective. (i) Calculate the amount of the original loan to the nearest £. (ii) (iii) Calculate the capital outstanding at the end of the first year (after the payment due has been made) to the nearest £0.01. Hence, or otherwise, calculate the capital and interest components of the 13th and 14th payments.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 25E

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

correct answers:

i) let 60 months, then is 16,775

ii) 15,293.38

iii) for 13th = 15,131.79 and for 14th = 167.64

NO tables, ONLY formulas, please

A loan is to be repaid by an annuity payable monthly in arrears over a 5-year period. The annuity
starts at a rate of £200 per month and increases each month by £5. Repayments are calculated
using a rate of interest of 8% per annum effective.
(i)
Calculate the amount of the original loan to the nearest £.
(ii)
(iii)
Calculate the capital outstanding at the end of the first year (after the payment due has
been made) to the nearest £0.01.
Hence, or otherwise, calculate the capital and interest components of the 13th and 14th
payments.

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