Question
You borrow Ksh 1.2million to buy a new car. The lender charges 5% p.a. compounded at the end of each month. You intend to pay
You borrow Ksh 1.2million to buy a new car. The lender charges 5% p.a. compounded at the end of each month. You intend to pay the loan off in 5 years. i. How much interest will you pay on the loan (2 Marks) ii. If the interest is compounded once a year instead of monthly, how much interest would you pay (2Marks) iii. What is the effective interest rate for the loan (3 Marks) iv. How would the effective interest rate change if interest was compounded fortnightly instead of monthly? (3 Marks) v. generate a table to show how the Loan of 1million to 2million should be paid over 1 yr, 2yr and 3yrs in successive quantums of 100,000 to enable any borrower to asees what best fits their capability of repayment (5 Marks)
Formulae A = P(1 +i)n B =P(1+ i/m)mn C =(1+i/m)m- 1
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