Question

Josh purchased a baseball team for 100 million dollars and financed the entire purchase price at a nominal rate of interest payable 12 times per year at 6% per annum. Josh planned to repay the loan with 10 annual payments of equal amount beginning one year after the loan began. Right after Josh made his fourth annual payment, he refinanced the loan at an effective annual interest rate of 5% for 15 more years. Josh repaid this new 15 year loan with equal payments at the end of each year. How much were these new payments for the refinanced loan?

Answer 1

Answer:

4 millions

Explanation:

First, we will check how much was amortizate for the first loan:

Principal 100 million

on 10 equal payment

amortization per year 100/10 = 10 millions

we refinance at the end of the fourth installment

10 x 4 = 40 millions

The principal at the end of year four:

Principal 100 millions - 40 millions = 60 millions

This amount will be paid on 15 years with 15 equal payment

60 million / 15 years = 4 millions