A debt of $30000 with interest at 9.75% compounded quarterly is to repaid by equal payments...

A debt of $30000 with interest at 9.75% compounded quarterly is to repaid by equal payments at the end of each year for 7 years. what is the size of annual payment also construct a payment schedule.

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Expert Solution

The payment frequency and compounding frequency are not the same i.e. payment is made annually whereas the interest rate is compounded quarterly, we have to find the effective annual rate.

The size of the annual payment is found using the following equation

Annual payment = $ 6184.5

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The payment schedule can be constructed using excel.

Interest = 0.1011 Beginning balance

Principal paid = Annual payment - interest

Ending balance = Beginning balance - principal paid

The formulas used in the cell is shown below

ekkarill92 answered 1 year ago

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