Question

Please solve and show each step you do to on a financial calculator!

1. A borrower is evaluating a loan $100,000 with annual rate of interest at 12%. He anticipates making monthly payments of $2,100 then a lump sum payment of $10,000. How long is he expecting to be paying this loan (rounded to the nearest number years / months)? Draw your cash flow diagram and show your steps used in financial calculator.

2. Given the following information about a fully amortizing loan, calculate the lender's yield (rounded to the nearest tenth of a percent). Loan amount: $166,950, Term: 30 years, Interest rate: 8 %, Monthly Payment: $1,225.00, Discount points: 3. Draw your cash flow diagram and show your steps used in financial calculator.

Answer 1

Answer 1

Principal Amount (P) = $100,000

Rate of Interest (r) = 12% p.a.

Monthly payments expected = $2,100

Lumpsum payment = $ 10,000

Period of loan (n) = ?

Financial Calculator -

We compute the amount of principal repaid every year, by inputing the total amount of installments paid per year ($2,100*12=$25,200). When the repayment schedule draws to a close (approx. nearest $10,000 left as per requirement for lumpsum payment), we calculate the no. of months that the further installments will be required. Repayment period will thus be computed as below:

Year/Month	Opening ($)	Installment ($)	Interest ($)	Principal paid	Closing ($)
(1)	(2)	(3)	(4)=(2)*12%	(5)=(3)-(4)	(6)=(2)-(5)
Year 1	1,00,000	25,200	12,000	13,200	86,800
Year 2	86,800	25,200	10,416	14,784	72,016
Year 3	72,016	25,200	8,642	16,558	55,458
Year 4	55,458	25,200	6,655	18,545	36,913
Year 5	36,913	25,200	4,430	20,770	16,142
Year 6 M1	16,142	2,100	161	1,939	14,204
Year 6 M2	14,204	2,100	142	1,958	12,246
Year 6 M3	12,246	2,100	122	1,978	10,268
Year 6 M4	10,268	10,000	103	9,897	371

Thus, he will approximately be paying this loan for 5 years and 5 months (65 months).