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.
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 12P
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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
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