A loan is to be repaid in end of quarter payments of $1,000 each, with there...

A loan is to be repaid in end of quarter payments of $1,000 each, with there being 20 end of quarter payments total. The interest rate for the first two years is 6% convertible quarterly, and the interest rate for the last three years is 8% convertible quarterly. Find the outstanding loan balance right after the 6^th payment.

Expert Solution

Particulars	Amount	Present value
Last three year quarterly payment	$ 1,000.00
× present value annuity factor at the beginning of third year	10.57534
Present value at beginning of third year	$ 10,575.34
× present value factor [6%, 0.5 years] converted qtrly	0.97066
Present value of last 12 payments	$ 10,265.08	$ 10,265.08

7th and 8th payments	$ 1,000.00
× present value annuity factor at the beginning of 7th payment	1.95588
Present value at beginning of 7th payment	$ 1,955.88
× present value factor [6%, 1.5 years] converted qtrly	1.00000
Present value of last 12 payments	$ 1,955.88	$ 1,955.88
Total present value		$ 12,220.96

Answer is $12,220.96

jeff jeffy answered 2 years ago

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