Financial Services Information Systems CO7218 Surgery 4 1. Calculate the first two payments using Equal Total Payments method. Total amount of loan (A): £100,000 Annual interest rate applicable for payment in period n (Rn): 5% Number of loan periods (N): 36 months Answer Payment1 = (Rn * A) / [1 – (1 +Rn)-N ] = (Rn * A) * (1 + Rn)N / (1 + Rn)N – 1 = (0.004 * 100,000) * (1+0.004)36 / (1+0.004)36 – 1 = (400*1.15455) / 0.15455 = £2988.15 PP1 = Payment1*(1+Rn)-(1+N-n) = Payment1 / (1+Rn)(1+N-n) = 2988.15 / (1.004)1+36-1 = 2988.15 / (1.004)36 = 2988.15 / 1.1545 = £2588.26 INT1 = Payment1- PP1 = 2988.15 – 2588.26 = £399.89 OB1 = (INT1/ Rn) – PP1 = (399.89/0.004) – 2588.26 = £97,384.24 Payment2 = (Rn * A) / [1 – (1 +Rn)-N ] = (Rn * A) * (1 + Rn)N / (1 + Rn)N – 1 = (0.004 * 100,000) * (1+0.004)36 / (1+0.004)36 – 1 = (400*1.15455) / 0.15455 = £2988.15 PP2 = Payment2*(1+Rn)-(1+N-n) = Payment2 / (1+Rn)(1+N-n) = 2988.15 / (1.004)1+36-2 = 2988.15 / (1.004)35 = 2988.15 / 1.149 = £2600.65 INT2 = Payment2- PP2 = 2988.15 – 2600.65 = £387.50 OB2 = (INT2/ Rn) – PP2 = (387.50/0.004) – 2600.65 = £94,274.35 No Payment Amount Principal Amount Interest Amount Outstanding Balance 1 £2988.15 £2588.26 £399.89 £97,384.24 2 £2988.15 £2600.65 £387.50 £94,274.35
