Question
In: Finance
A loan of $10,000 is being repaid with 10 payments at the end of each year,...
A loan of $10,000 is being repaid with 10 payments at the end of each year, where each payment includes equal amount of repayment of the principal and the interest at a rate of 5% based on the outstanding balance after the previous payment. Immediately after the loan was made, the right of the loan was sold at a price that yields an annual effective rate of 10%. Find the price paid for the right of the loan. (Answer: $8072.28) Show work and equations.
Solutions
Expert Solution
Repayment of the principal is made in equal yearly instalments.
Hence each instalment will be of $1,000. Interest will be
calculated on the principal left at the end of previous year. Thus
total repayment at the end of the year will be interest paid for
that year and principal repayment for that year. Price paid for the
right of the loan is the sum of present value of the total
repayment for the years at a discount rate of 10%. This can be
calculated as workings in the table below: 
End result will be as follows: 
Hence the answer is
$8,072.28
jeff jeffy answered 1 year agoRelated Solutions
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please explain, having much trouble with this problem,
Thanks!
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