Five years ago, you had arranged for an eight-year bank loan for $300,000 at an interest...

Five years ago, you had arranged for an eight-year bank loan for $300,000 at an interest rate of 10% p.a. with interest compounded semi-annually. The loan was being repaid in equal semi-annual instalments and the payments were being made at the end of each period. The total amount still owed the bank today is closest to？

Could you please show the solution step by step instead of using Excel functions…Thanks a lot!

Expert Solution

Semiannual payments=Loan*(rate/2)/(1-1/(1+rate/2)^(2*n))=300000*(10%/2)/(1-1/(1+10%/2)^(2*8))=27680.9723933

Loan outstanding after x years=Loan*(1+rate/2)^(2*x)-Semiannual payments/(rate/2)*((1+rate/2)^(2*x)-1)=300000*(1+10%/2)^(2*5)-27680.9723933/(10%/2)*((1+10%/2)^(2*5)-1)=140500.0919908

jeff jeffy answered 2 years ago

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