The Beta Corporation obtains a bank loan that is disbursed as follows: Shs 320 million, Shs...

The Beta Corporation obtains a bank loan that is disbursed as follows: Shs 320 million, Shs 240 million, Shs 160 million and Shs 80 million at the beginning of years one, two, three, and four respectively. The loan is repaid in five equal annual installments of Shs 300 million at the end of years four to eight, and a final amount at the beginning of year 12. Given a rate of inflation of 4.0% per annum during the period, and if Beta’s real cost of the loan is 15% per annum, what should the final repayment be?

Expert Solution

Year	Opening balance	Loan disbursement	Interest @ 15 %	Payment	Closing Balance	Inflation @4%	Real Payment
1	0.00	320.00	48.00		368.00	1.00
2	368.00	240.00	91.20		699.20	0.96
3	699.20	160.00	128.88		988.08	0.92
4	988.08	80.00	160.21	300.00	928.29	0.89	266.70
5	928.29		139.24	300.00	767.54	0.85	256.44
6	767.54		115.13	300.00	582.67	0.82	246.58
7	582.67		87.40	300.00	370.07	0.79	237.09
8	370.07		55.51	300.00	125.58	0.76	227.98
9	125.58		18.84		144.41	0.73	0.00
10	144.41		21.66		166.07	0.70	0.00
11	166.07		24.91		190.99	0.68	0.00
12	190.99			190.99	0.00	0.65	124.06
	Total	800.00	890.99	1,690.99			1,358.85

Assumption
1	Interest has been charged on overdue interest also.
2	Final payment however made at the beginning of 12th year inflation rate of 12th year would be applicable, else final payment would be


	Payment	inflation @ 4%		Real payment
	190.99	0.68		129.02
	Total real payment would be		1358.85-124.06+129.02			=	1,363.81

jeff jeffy answered 1 year ago

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