Question

A sum of K3,000 is borrowed for 2 years at the reducing balance interest rate of 12% p.a. compounded every two-monthly.

Answer 1

a) The full loan repayment schedule for the two years is as follows:

Loan Repayment Schedule:

Period          PV                   PMT             Interest               FV

1           $3,000.00          $283.68          $60.00          $2,776.32

2           $2,776.32          $283.68          $55.53           $2,548.17

3           $2,548.17           $283.68          $50.96          $2,315.45

4           $2,315.45           $283.68           $46.31         $2,078.08

5          $2,078.08           $283.68           $41.56          $1,835.97

6           $1,835.97           $283.68          $36.72          $1,589.01

Year #1 end

7          $1,589.01           $283.68           $31.78           $1,337.11

8           $1,337.11          $283.68          $26.74           $1,080.17

9           $1,080.17           $283.68          $21.60             $818.10

10            $818.10           $283.68           $16.36           $550.78

11           $550.78           $283.68            $11.02            $278.12

12           $278.12           $283.68            $5.56            $0.00

Year #2 end

b) The balance of the loan at the end of the seventh repayment period is $1,337.11.

c) The total interest paid for this loan is $404.16.

d) If the borrower decides to terminate the loan after the first year, the termination payment should be $1,589.01.

Data and Calculations:

N (# of periods) = 12 months (2 x 6)

I/Y (Interest per year) = 12%

PV (Present Value) = K3000

FV (Future Value) = K0

Results:

PMT every two months = $283.68

Sum of all periodic payments = $3,404.16 ($283.68 x 12)

Total Interest = $404.16

Learn more about loan repayment schedules at brainly.com/question/24576997

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