Question

A debt of $15,000 with interest at 8.3%p.a compounding quarterly is to be repaid with 9 equal end-of-quarter payments.

How much interest is in the final instalment?

(Hint use excel: You can either:

-       First calculate the loan outstanding at the beginning of the last quarter. The interest can then be calculated as if you were setting up a loan repayment schedule for the final quarter.

-       Use IPMT function)

Answer 1

Loan amount 15000 Interest rate 8.3% compounded quarterly Number of payments We will use the PMT, PPMT and IPMT function of excel to calculate the respective values Period Periodic payment Principal payment Interest Payment Principal outstanding at the end of year ($1,844.32) ($1,533.07) ($311.25) $13,466.93 ($1,844.32) ($1,564.88) ($279.44) $11,902.06 ($1,844.32) ($1,597.35) ($246.97) $10,304.71 ($1,844.32) ($1,630.49) ($213.82) $8,674.22 ($1,844.32) ($1,664.33) ($179.99) $7,009.89 ($1,844.32) ($1,698.86) ($145.46) $5,311.03 ($1,844.32) ($1,734.11) ($110.20) $3,576.92 ($1,844.32) ($1,770.09) ($74.22) $1,806.82 ($1,844.32) ($1,806.82) ($37.49) $0.00 In the final instalment payment of $1844.32, $1806.82 is towards the principal and $37.49 is towards the interest payment.