Miss Clare Jarrett just closed a loan of $400 000 to assist with the purchase of equipment and fixtures for her small business. This loan will be repaid in five equal annual end-of-year instalments at an interest rate of 8% compounded annually.   Complete the following: Determine the yearly payment  Prepare an amortisation schedule  What is the loan balance just after the end of year three?  How much interest expense will Clare pay over the life of the loan? What would be the effective rate of interest if interest were to be compounded quarterly? Semi-annually?

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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.