4. A loan of $250,000 is to be repaid in seven annual installments, starting one

Question

4. A loan of $250,000 is to be repaid in seven annual installments, starting one year after the loan (a) The loan is repaid in equal annual payments, and the effective annual interest rate for the (b) The first three payments are equal and the last four payments are equal. The first payment was made. Construct an amortization schedule for the loan in each of the following cases: O. is four times the last payment. The effective annual interest rate is 3% throughout the loan. Hint: The payments are 4K,4K,4K, K, K, K, K.] (c) The amount of annual payment increases by 5% every year, and the effective annual interest rate is 3%.

Explanation / Answer

Loan Amount (PV) = $ 250,000

Annual Interest Rate (rate) = 3%

Number of periods(nper) = 7

Annual Payment(PMT) = pmt(3%,7,250000) = 40,127

So Total Payment Made = 40,127* 7 = $ 280,889

ie 4K+4K+4K+K+K+K+K = 16K

16K =280,889

K= $ 17,555.56

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