A company offers its employees a loan facility whereby the employees can borrow up to $ 100,000.
Question:
A company offers its employees a loan facility whereby the employees can borrow up to $ 100,000. Suppose an individual has borrowed $100,000. The loan (and the interest) is to be repaid over the next 20 years. It has a lower interest rate of 4% per annum compounded quarterly for the first 2 years and thereafter a standard nominal rate of 5.5% per annum compounded quarterly for the remaining 18 years.
A)Prepare the loan repayment schedule, assuming a fixed rate of 5.5% per annum for the whole term (20 years) of the loan
1)Calculate the quarterly repayment P that pays out the loan in 20 years?
2)How much interest is paid in the first quarter?
3)What is the principal remaining (loan balance) after 2 years (8 quarters)?
4)What is the sum of all the repayments?
5)How much interest is paid in total?
B)Redo the loan repayment schedule, using 4% per annum compounded quarterly for the first 2 years and the standard rate of 5.5% after that. Use the same quarterly repayment amount P in Part A for the total duration of the loan.
1)How much interest is paid in the first quarter? and in the 9th quarter?
2)What is the principal remaining (loan balance) after 2 years (8 quarters)?
3)Adjust the last payment (which will be less than P) accordingly, so that the principal remaining is zero. What will be the last repayment?
4)In what quarter the last repayment made?
5)How much interest is paid in full?
6)Comparing part A and part B calculate the saving?
Intermediate Accounting
ISBN: 978-1260481952
10th edition
Authors: J. David Spiceland, James Sepe , Mark Nelson, Wayne Thomas