Question

Your uncle has borrowed $300,000 for a 5-year period at a stated interest rate of 8% p.a. with

interest compounded quarterly. He intends to make equal, quarterly payments on the loan over

its duration with the first payment scheduled at the end of the first quarter. Assuming end-of-

the-quarter cash flows, the principal repaid in the second quarter will be closest to:

a) $5,753.

b) $12,347.

c) $12,594.

d) $18,347.

Answer 1

Quarterly payment of the loan= $18,347.02 Calculated as follows:

Principal paid in the second quarter is closest to $12,594

Hence the answer is option c.

Relevant portion of the amortization schedule below: