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Question 2 (9 marks) A loan is to be repaid to the bank by regular instalments, annually in arrears. The first instalment is $3000, the
Question 2 (9 marks) A loan is to be repaid to the bank by regular instalments, annually in arrears. The first instalment is $3000, the second is $2900, the third is $2800, and so on with payments reducing by $100 per annum until the end of the 20th year, at which time the outstanding loan is zero and there are no further payments. The interest rate charged on this loan is 8.5% per annum (effective). (a) What is the size of the loan? Show all workings. [3 marks] (b) What are the interest and principal components of the 15th payment? Show all workings. [3 marks] (c) How much interest is paid during the last six years of the loan? Show all workings. [3 marks]
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