A 5-year loan of 500,000 with an annual effective discount rate of 8% is to be repaid by level end-of-year payments. If the first four payme

Question

A 5-year loan of 500,000 with an annual effective discount rate of 8% is to be repaid by level end-of-year payments. If the first four payments had been rounded up to the next multiple of 1,000, the final payment would be X. Calculate X.

a. 103,500
b. 111,700
c. 115,200
d. 125,200
e. 127,500

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niczorrrr 3 years 2021-08-18T01:02:23+00:00 1 Answers 13 views 0

Answers ( )

  1. Maris
    0
    2021-08-18T01:04:07+00:00
    Reply

    Answer:

    125,200

    Step-by-step explanation:

    Given :

    Loan amount (P) = 500,000

    Annual effective interest (r) = 8% = 8/100 = 0.08

    n = 5 (5th payment) = final payment

    Using the relation :

    Payment amount per period :

    A = (P(1 + r)^n * r) ÷ (1 + r)^n – 1

    A = (500000(1 + 0.08)^5 * 0.08) / (1 + 0.08)^5 – 1

    A = 40000(1.08)^5 / 1.08^5 – 1

    A = 40000(1.4693280768) / 1.4693280768 – 1

    A = 58773.123072 / 0.4693280768

    A = 125228.22

    A = 125,200 ( nearest hundred)

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