Alan borrows $100,000 at nominal interest rate 9% per annum which matures in 5 years. Repayments are made monthly such t
Posted: Mon May 02, 2022 9:15 am
Alan borrows $100,000 at nominal interest rate 9% per annum
which matures in 5 years. Repayments are made monthly such that
each monthly payment in the last 2 years is twice that in the first
3 years. a) Calculate the monthly payments for this loan. b)
Construct the amortization table for this loan which includes the
following columns Installment, Interest payment, Principal payment,
Outstanding balance. c) After 3 years, the market nominal interest
rate falls to 6% per annum. Alan wants to terminate the loan. The
bank charges the termination fee which is 40% of the difference in
total remaining interest payment. Calculate the amount Alan needs
to pay the bank (including outstanding balance and termination
fee). d) Alan borrows the amount in part c) at 6% per annum. If he
keeps to the current monthly payment, how long will he pay off
everything ? e) What is Alan’s monthly payment if he decides to
keep to his schedule of paying off the debt in the next 2 years ?
f) Suppose Alan follows the payment schedule in part e). Write down
the equation of value for the cash flow generated by Alan in terms
of the hypothetically constant monthly internal rate of return i.
Use Excel’s Solver to find i.
which matures in 5 years. Repayments are made monthly such that
each monthly payment in the last 2 years is twice that in the first
3 years. a) Calculate the monthly payments for this loan. b)
Construct the amortization table for this loan which includes the
following columns Installment, Interest payment, Principal payment,
Outstanding balance. c) After 3 years, the market nominal interest
rate falls to 6% per annum. Alan wants to terminate the loan. The
bank charges the termination fee which is 40% of the difference in
total remaining interest payment. Calculate the amount Alan needs
to pay the bank (including outstanding balance and termination
fee). d) Alan borrows the amount in part c) at 6% per annum. If he
keeps to the current monthly payment, how long will he pay off
everything ? e) What is Alan’s monthly payment if he decides to
keep to his schedule of paying off the debt in the next 2 years ?
f) Suppose Alan follows the payment schedule in part e). Write down
the equation of value for the cash flow generated by Alan in terms
of the hypothetically constant monthly internal rate of return i.
Use Excel’s Solver to find i.