Payments on a Jan. 1, 1995 40,000 loan are as follows: 1/1/96: 5,000 1/1/97: 5,000 1/1/98:...

Payments on a Jan. 1, 1995 40,000 loan are as follows:

1/1/96: 5,000
1/1/97: 5,000
1/1/98: 5,000
On July 1, 1998 an additional 10,000 is paid on the loan and no more payments are made.

If d(4)=0.1 how much is owed on the loan on Jan. 1, 2005?

Expert Solution

annual effective discount rate=1-(1-d/4)^4=1-(1-0.1/4)^4=9.6312%

annual effective interest rate=d/(1-d)=9.6312%/(1-9.6312%)=10.657674%

Amount owed on Jan 1,2005=40000*(1+10.657674%)^10-5000*(1+10.657674%)^9-5000*(1+10.657674%)^8-5000*(1+10.657674%)^7-10000*(1+10.657674%)^6.5=56968.2406

jeff jeffy answered 2 years ago

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