Exactly 10 years ago a loan was taken out that was to be repaid by level annual instalments made in arrears over a 20-year contract. Given that the instalments (of capital and interest) were set to £1,043.05 based on a 7% per annum effective interest rate on the borrowing, calculate the following: (i) (ii) The initial amount of loan taken out in this contract to the nearest £. The amount of loan outstanding immediately after the instalment now due is paid to the nearest £. (iii) It is agreed that immediately after the instalment now due the interest rate charged on the outstanding loan is reduced to 5% per annum effective. Consequently, the level annual instalments will be payable for a revised term but with a reduced final payment. Find: a) The revised term of the loan outstanding. b) The amount of the reduced final payment. c) The interest and capital component of the reduced final payment.
Exactly 10 years ago a loan was taken out that was to be repaid by level annual instalments made in arrears over a 20-year contract. Given that the instalments (of capital and interest) were set to £1,043.05 based on a 7% per annum effective interest rate on the borrowing, calculate the following: (i) (ii) The initial amount of loan taken out in this contract to the nearest £. The amount of loan outstanding immediately after the instalment now due is paid to the nearest £. (iii) It is agreed that immediately after the instalment now due the interest rate charged on the outstanding loan is reduced to 5% per annum effective. Consequently, the level annual instalments will be payable for a revised term but with a reduced final payment. Find: a) The revised term of the loan outstanding. b) The amount of the reduced final payment. c) The interest and capital component of the reduced final payment.
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
Related questions
Question
correct asnwers:
i) 11,050
ii) 7,326
iii) a) 9 years, b) 960.82 and c) 863.64 and 43.18
No tables, ONLY formulas, please
Transcribed Image Text:Exactly 10 years ago a loan was taken out that was to be repaid by level annual instalments made in
arrears over a 20-year contract. Given that the instalments (of capital and interest) were set to
£1,043.05 based on a 7% per annum effective interest rate on the borrowing, calculate the
following:
(i)
(ii)
The initial amount of loan taken out in this contract to the nearest £.
The amount of loan outstanding immediately after the instalment now due is paid to the
nearest £.
(iii)
It is agreed that immediately after the instalment now due the interest rate charged on the
outstanding loan is reduced to 5% per annum effective. Consequently, the level annual
instalments will be payable for a revised term but with a reduced final payment. Find:
a) The revised term of the loan outstanding.
b) The amount of the reduced final payment.
c) The interest and capital component of the reduced final payment.
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