Answer to Question #136531 in Financial Math for Wachira Ann Wangari

Question

A loan of$2400 is to be repaid by 20 equal annual instalments. The rate of interest for the transaction is 10%per annum. Find the amount of each annual repayment, assuming that payments are made
(a) in arrears
(b) in advance

Answer 1

(a) in arears

$\frac{r}{100}\times 2400$

$\frac{10}{100}\times2400$

$0.1\times2400$

$=\$240$

(b) in advance

$v=\frac{1}{1+i}$

$v=\frac{1}{1+0.07}$

$v=\frac{1}{1.01}$

$v=0.909090$

$2400\times0.909090$

$=2181.816$

$2400-2181.816$

$=\$218.184$