Chapter 9: Loans

Question 1

Calculating repayment amount

Answer 1

Full loan amount= PV of repayments
PV is calculated using the interest rate being charged on the loan.

Question 2

Prospective Method

Answer 2

Way to calculate the capital outstanding on a loan just after a repayment has been made.

Capital outstanding=PV of future repayments

Question 3

Retrospective method

Answer 3

Way to calculate the capital outstanding on a loan just after a repayment has been made.

Capital outstanding=AV of full amount - AV of past repayments

Question 4

Amount of interest paid (on a loan)

Answer 4

Total interest = Sum of repayments - Full loan amount

Question 5

Interest and Capital components of a loan instalment

Answer 5

Interest component = Capital outstanding after the previous repayment * Effective rate of interest for the payment period

Capital component = Amount of instalment - interest component of instalment

Question 6

Capital repaid over a given time period

Answer 6

Capital repaid= Capital outstanding at SOP - Capital outstanding at EOP

Question 7

Interest paid over a given period

Answer 7

Interest paid = Total payments made over period - Capital repaid over the time period

Question 8

Effective annual interest rate

Answer 8

APR (annual percentage rate)
=~ 2 * Flat Rate

The i at which the equation of value completes