A bank provides a loan product with loan amount L. The loan is to be repaid...

 

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A bank provides a loan product with loan amount L. The loan is to be repaid over n years with increasing annual instalments payable in arrears. (a) Assume that the instalments increases every year at the rate of g per annum and the bank requires an effective rate of return of i per annum, where ig. If the first instalment is denoted by X, show that L=X (1-(+)" i-9 [7 marks] (b) A company has borrowed £150,000 from the bank and agreed to repay the loan over 12 years with increasing annual instalments in arrears that grows at rate of 7% per annum. (i) Calculate the amount of the first instalment if the bank requires an [2 marks] effective yield of 10%. (ii) For each of the year 10 and year 11, construct a loan schedule showing the outstanding capital at the beginning of the year, the interest payment and the capital payment. [9 marks] [Total: 18 marks] A bank provides a loan product with loan amount L. The loan is to be repaid over n years with increasing annual instalments payable in arrears. (a) Assume that the instalments increases every year at the rate of g per annum and the bank requires an effective rate of return of i per annum, where ig. If the first instalment is denoted by X, show that L=X (1-(+)" i-9 [7 marks] (b) A company has borrowed £150,000 from the bank and agreed to repay the loan over 12 years with increasing annual instalments in arrears that grows at rate of 7% per annum. (i) Calculate the amount of the first instalment if the bank requires an [2 marks] effective yield of 10%. (ii) For each of the year 10 and year 11, construct a loan schedule showing the outstanding capital at the beginning of the year, the interest payment and the capital payment. [9 marks] [Total: 18 marks]

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