Daneen has borrowed $6000 from her bank to buy a new machine for her business. She...

Daneen has borrowed $6000 from her bank to buy a new machine for her business. She has promised to make payments of $2000 after two years, $2500 after three years, and a final payment after five years. What is the size of the last payment, if interest is 8% compounded semiannually? show caculation by BAII plus CAlculator.You are encouraged to draw the timelines for yourself to help you with setting up the logic of how to solve the problem.

Expert Solution

		=Op Bal * 8% / 2
Months	Op Bal	Interest	Payment	Closing Balance
6	6,000	240	-	6,240
12	6,240	250	-	6,490
18	6,490	260	-	6,749
24	6,749	270	2,000	5,019
30	5,019	201	-	5,220
36	5,220	209	2,500	2,929
42	2,929	117	-	3,046
48	3,046	122	-	3,168
54	3,168	127	-	3,294
60	3,294	132	3,426	-

Using BA2 Plus calculator:-

We will assume 6 monthly cash flows since interest is compounded Semiannually. Using CF function, enter below variables:-

CF0 = +6000

CF1 = 0, CF2 = 0, CF3 = 0, CF4 = -2000, CF5 = 0, CF6 = 2500, CF7 = 0, CF8 = 0, CF9 = 0, CF10 = 0,

Now press NPV, Enter I = 4% ( 8% / 2), Press down arrow and calculate NPV. This will show as 3426. This is the last loan payment to be made.

jeff jeffy answered 1 year ago

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