How much will the borrower have to pay

Reference no: EM131002007

1. A loan of 2300 is to be repaid by n yearly payments of 230 beginning at time 5. The borrower is given the option of repaying only 115 at time 5, but must then pay 240 in each of the subsequent payments. Find v(5). (An exact numerical answer is required. It should not be a function of n.)

2. A loan of 20 000, made at an interest rate of 6%, is to be repaid by level yearly payments for 10 years, beginning 1 year after the loan is advanced. Just before making the seventh repayment, the borrower wishes to repay the entire loan.

(a) If interest rates remain unchanged, what is the outstanding balance?

(b) Suppose interest rates have dropped to 5%. How much will the borrower have to pay if the lender uses the lower interest rate to calculate the outstanding balance?

Reference no: EM131002007

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