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A loan of £50,000 is repaid by annual payments of £4000 in arrear over a period of 20 years. What is the effective rate of in
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Answer #1

Using the Ammortization method

Loan Principal L = (Payment Amount) × an|i

50000 = 4000 * a(20)|(i)

50000/4000 = [1-(1+x)^(-20)]/x

12.5x= 1-(1+x)^(-20)

x= 0.05

Hence the effective Rate of Interest per annum is 5%.

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