QUESTION THREE

a) Assuming that you borrowed K 250,000.00 from AU Bank to finance a business project. The agreement was to pay this amount in four(4) equal annual installments that include principle and 17% interest. Calculate the annual installment and draw the amortization schedule for this loan. (10 marks) b) You would like to buy a piece of equipment for K300 million, paying 10% down payment and agreeing to pay the balance in 15 equal installments that include principal and 15% interest compounded annually on declining balance. The other option is to pay interest compounded at the same rate semi annually. Required: i. Calculate the effective interest rate paid on the two options (5 marks) ii. Explain the difference between Annual percentage rate and Effective Annual Rate (EAR). (5 marks) Total 20 Marks