Chapter3 LOANS MORE GENERAL LOAN PAYMENT Salma Alsuwail

Chapter#3 LOANS: MORE GENERAL LOAN PAYMENT Salma Alsuwail

examples ✘ An investor took out a loan of 150, 000 at 8% compounded quarterly, to be repaid over 10 years with quarterly payments of 5483. 36 at the end of each quarter. After 12 payments, the interest rate dropped to 6% compounded quarterly. The new quarterly payment dropped to 5134. 62. After 20 payments in total, the interest rate on the loan increased to 7% compounded quarterly. The investor decided to make an additional payment of X at the time of his 20 th payment. After the additional payment was made, the new quarterly payment was calculated to be 4265. 73, payable for five more years. Determine X. A 11, 047 B 13, 369 C 16, 691 D 20, 152 E 23, 614 Salma Alsuwail

✘ A loan is being paid off by payments of 1, 000, 2, 000, . . . , 10, 000 at the end of years 1, 2, . . . , 10. The effective annual interest rate is 18%. Determine the amount of interest in the 7 th payment. A 3916 B 4016 C 4116 D 4216 E 4316 Salma Alsuwail

✘ Rachael has a 100, 000, 30 year, fixed mortgage with a 12% nominal interest rate convertible monthly. She has made payments at the end of each month for ten years. Now she will begin making twice the payment each month. How many years will she be able to take off the original 30 years assuming a balloon payment for the final fractional payment? A 12 B 13 C 14 D 15 E 16 Salma Alsuwail

✘ Bob borrowed $10, 000 at an effective annual rate of interest of 7%. Bob’s plan was to repay the loan with equal principal repayments plus interest at the end of each year for 20 years. After the 10 th payment, Bob decides to change his payment scheme and pay the outstanding balance with equal annual payments. The loan will still be repaid in 20 years. Calculate the difference between the 10 th and 11 th payment. A Less than 174 B At least 174, but less than 180 C At least 180, but less than 186 D At least 186, but less than 192 E 192 or more Salma Alsuwail

✘ Ben agrees to a $60, 000 loan for 30 years. The loan has an annual effective rate of interest of 5%. The loan is repaid with annual payments consisting of equal principal repayments, plus interest on the loan balance. All payments are made at the end of the year. After the 16 th payment, Ben decides to completely pay off his loan with two payments. The first payment is $20, 000 paid immediately. The second payment will be made in 5 years. Calculate the amount of the second payment. A Less than 11, 000 B At least 11, 000, but less than 13, 000 C At least 13, 000, but less than 15, 000 D At least 15, 000, but less than 17, 000 E 17, 000 or more Salma Alsuwail

✘ A loan is being repaid by 15 annual installments of 1, 000 each. Interest is at an effective annual rate of 5%. Immediately after the fifth installment is paid, the loan is renegotiated. The revised amortization schedule calls for a sixth installment of 800, a seventh installment of (800 + K), with each subsequent installment increasing by K over the previous payment. The period of the loan is not changed. Determine the revised amount of the last installment. A 1240 B 1290 C 1360 D 1440 E 1460 Salma Alsuwail

✘ A loan is amortized over five years with monthly payments at an annual nominal interest rate of 9% compounded monthly. The first payment is 1000 and is to be paid one month from the date of the loan. Each succeeding monthly payment will be 2% lower than the prior payment. Calculate the outstanding loan balance immediately after the 40 th payment is made. A 6750 B 6890 C 6940 D 7030 E 7340 Salma Alsuwail

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