A loan is repayable by a decreasing annuity payable annually in arrears for 20 years. The repayment at the end of the first year is $6,000 and subsequent repayments reduce by $200 each year. The repayments were calculated using an effective rate of interest of 9% per annum. (a) Calculate the original amount of the loan. (b) Immediately after the ninth payment of interest and capital, the interest rate on the outstanding loan is reduced to 7% per annum effective. Calculate the amount of the tenth payment if subsequent payments continue to be reduced by $200 each year, and the loan is to be repaid by the original date, i.e. 20 years from commencement.
A loan is repayable by a decreasing annuity payable annually in arrears for 20 years. The repayment at the end of the first year is $6,000 and subsequent repayments reduce by $200 each year. The repayments were calculated using an effective rate of interest of 9% per annum. (a) Calculate the original amount of the loan. (b) Immediately after the ninth payment of interest and capital, the interest rate on the outstanding loan is reduced to 7% per annum effective. Calculate the amount of the tenth payment if subsequent payments continue to be reduced by $200 each year, and the loan is to be repaid by the original date, i.e. 20 years from commencement.
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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Transcribed Image Text:A loan is repayable by a decreasing annuity payable annually in
arrears for 20 years. The repayment at the end of the first year is
$6,000 and subsequent repayments reduce by $200 each year.
The repayments were calculated using an effective rate of interest
of 9% per annum.
(a)
Calculate the original amount of the loan.
(b)
Immediately after the ninth payment of interest and capital, the
interest rate on the outstanding loan is reduced to 7% per annum
effective. Calculate the amount of the tenth payment if subsequent
payments continue to be reduced by $200 each year, and the loan
is to be repaid by the original date, i.e. 20 years from
commencement.
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