Question: Consider 10-year Sh. 200,000 loan with an initial interest rate of 10% p.a. payable monthly. The subsequent rates are based on index plus a margin

Consider 10-year Sh. 200,000 loan with an initial interest rate of 10% p.a. payable monthly. The subsequent rates are based on index plus a margin of 2%. The index is expected to be at 11% and 9% in the coming two years. There is a 6% cap on PMT year on year.

Required

a)Calculate the monthly PMT for years 1, 2 and 3

b)Calculate Loan balances at the end of Year 1, 2 and 3

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