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A loan of 16,000 is repaid by 8 annual payments starting 1 year after the loan...

A loan of 16,000 is repaid by 8 annual payments starting 1 year after the loan is made. The amount of the first 2 payments is X and the amount of the last 6 payments is 2X. The effective annual interest rate is 6%.

Find:

a. X.

b. OB7 providing formulas for both the retrospective and prospective calculation approaches.   

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Answer #1

Loan Amount = $16,000

Payments = 8

Loan amount will be equal to the present value of all repayments.

16,000 = x/(1.06)+x(1.06)2+ 2x(1.06)3+ 2x(1.06)4+ 2x(1.06)5+ 2x(1.06)6 + 2x(1.06)7 + 2x(1.06)8

16,000= x*0.943 + x*0.890+2x*0.840 + 2x*0.792 + 2x*0.747 + 2x*0.705+2x*0.665 + 2x*0.627

16,000 = 10.585x

X = $1,511.57

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