Reduce the interest on the loan

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Reference no: EM13741137

An engineer borrowed $3000 from the bank, payable in six equal end-of-year payments at 8%. The bank agreed to reduce the interest on the loan if interest rates declined in the United States before the loan was fully repaid. At the end of three years, at the time of the third payment, the bank agreed to reduce the interest rate from 8% to 7% on the remaining debt (years 4, 5 and 6).

a) Draw a Cash Flow Diagram (neatly – by hand and with a straight edge or use EXCEL): label all items/values, and time increments.

b) What is the amount of the equal annual end-of-year payments for each of the first three years?

c) What is the amount of the equal annual end-of year payments for each of the last three years?

Reference no: EM13741137

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