Answer to Question #258971 in Finance for Imalka

Question

Nihal is borrowing Rs. 50,000 to buy ABC assets. If he pays equal installments for 25

years and 4% interest on the outstanding balance, what is the amount of installment?

What shall be the amount of installment if quarterly payments are required to be made?

Answer 1

Let's apply the formula for the annuity payment on the loan:

n=25

i=0.04

$x=S(i+\frac{i}{(1+i)^n-1}=50000(0.04+\frac{0.04}{(1+0.04)^{25}-1}=3200.60$

if quarterly payments: 

$n=4\times25=100$

$i=\frac{0.04}{4}=0.01$

$x=S(i+\frac{i}{(1+i)^n-1}=50000(0.01+\frac{0.01}{(1+0.01)^{100}-1}=793.29$