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.
Chapter4: Time Value Of Money
Section4.17: Amortized Loans
Problem 1ST
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Transcribed Image Text: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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NO tables, please, only formulas
correct answers are:
(i) n=12×5=60(months) --> ?0 = £16,775
(ii) L12 = £15,293.38
(iii)
a) I13 = 98.4 and C13 = 161.6 --> L13 = L12 − C13 = 15,131.79
b) I14 = 97.36 and C14 = 167.64
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