Exactly 10 years ago a loan was taken out that was to be repaid by level annual instalments made in arrears over a 20-year contract. Given that the instalments (of capital and interest) were set to £1,043.05 based on a 7% per annum effective interest rate on the borrowing, calculate the following: (i) (ii) The initial amount of loan taken out in this contract to the nearest £. The amount of loan outstanding immediately after the instalment now due is paid to the nearest £. (iii) It is agreed that immediately after the instalment now due the interest rate charged on the outstanding loan is reduced to 5% per annum effective. Consequently, the level annual instalments will be payable for a revised term but with a reduced final payment. Find: a) The revised term of the loan outstanding. b) The amount of the reduced final payment. c) The interest and capital component of the reduced final payment.
Exactly 10 years ago a loan was taken out that was to be repaid by level annual instalments made in arrears over a 20-year contract. Given that the instalments (of capital and interest) were set to £1,043.05 based on a 7% per annum effective interest rate on the borrowing, calculate the following: (i) (ii) The initial amount of loan taken out in this contract to the nearest £. The amount of loan outstanding immediately after the instalment now due is paid to the nearest £. (iii) It is agreed that immediately after the instalment now due the interest rate charged on the outstanding loan is reduced to 5% per annum effective. Consequently, the level annual instalments will be payable for a revised term but with a reduced final payment. Find: a) The revised term of the loan outstanding. b) The amount of the reduced final payment. c) The interest and capital component of the reduced final payment.
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 12P
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![Exactly 10 years ago a loan was taken out that was to be repaid by level annual instalments made in
arrears over a 20-year contract. Given that the instalments (of capital and interest) were set to
£1,043.05 based on a 7% per annum effective interest rate on the borrowing, calculate the
following:
(i)
(ii)
The initial amount of loan taken out in this contract to the nearest £.
The amount of loan outstanding immediately after the instalment now due is paid to the
nearest £.
It is agreed that immediately after the instalment now due the interest rate charged on the
outstanding loan is reduced to 5% per annum effective. Consequently, the level annual
instalments will be payable for a revised term but with a reduced final payment. Find:
a) The revised term of the loan outstanding.
b) The amount of the reduced final payment.
c) The interest and capital component of the reduced final payment.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F017b5c7e-49c0-46c7-a22b-9336d465c7c9%2F3e3b6b5d-bc59-4684-beac-1dcd2bdf7ef4%2Fxiwla8_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Exactly 10 years ago a loan was taken out that was to be repaid by level annual instalments made in
arrears over a 20-year contract. Given that the instalments (of capital and interest) were set to
£1,043.05 based on a 7% per annum effective interest rate on the borrowing, calculate the
following:
(i)
(ii)
The initial amount of loan taken out in this contract to the nearest £.
The amount of loan outstanding immediately after the instalment now due is paid to the
nearest £.
It is agreed that immediately after the instalment now due the interest rate charged on the
outstanding loan is reduced to 5% per annum effective. Consequently, the level annual
instalments will be payable for a revised term but with a reduced final payment. Find:
a) The revised term of the loan outstanding.
b) The amount of the reduced final payment.
c) The interest and capital component of the reduced final payment.
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