Homework Answers
| Time | Payment | Interest | Principal Reduction | Outstanding Balance |
|
0 |
- |
- |
- |
25300 |
|
1 |
6504.44 |
2277.001 |
4227.441 |
21072.561 |
| 2 | 6504.44 | 1896.52 | 4607.92 | 16464.65 |
a)
Amount of level payment : 2277.001 + 4227.441 = 6504.44
b)
Initial amount of loan T0 : Principal o/s at year 1 end + opening balance = 21072.561 - 4227.441 = 25300.00
c)
Effective interest rate : Interest / opening outstanding: 2277.001 / 25300 = 0.09 or 9%
or 1896.53/ 21072.561 = 0.09 or 9%
d)
Annual level payment: Loan amount / PVAF @ 9%, for n years
6504.44 = 25300 / PVAF @ 9%, for n years
PVAF @ 9%, for n year = 25300/6504.44
PVAF @ 9%, for n year = 3.8896
PVAF @ 9% becomes 3.8896 after 5 years, hence, total 5 payments will be made until the loan is paid off.
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