TUTORIAL 4 LOAN SCHEDULE

1 A loan of Rs250,000 is to be repaid by a level annuity payable annually in arrears for 25 years, calculated at an effective rate of interest of 7% p.a. (a) i. Find the annual repayment. ii. Find the capital and interest components of the fifth payment. iii. After which repayment is there less than Rs50,000 outstanding on the loan? iv. For which repayment does the capital content first exceed the interest content? (b) Immediately after making the twentieth payment, the borrower requests that the loan be extended by 5 years. Given that the lender accedes to this request, find the revised annual repayment for the remaining period of the loan. 2 A loan of Rs9,880 was granted on 10 July 1978. The loan is repayable by a level annuity payable monthly in arrears (on the 10th of each month) for 25 years and calculated on the basis of an interest rate of 7% per annum effective. Find (a) the monthly repayment; (b) the loan outstanding immediately after the repayment on 10 March 1992; (c) the capital to be repaid on October 1989; (d) (i) the total capital to be repaid, and (ii) the total amount of interest to be paid, in the monthly instalments due between 10 April 1996 and 10 March 1997 (both dates inclusive). (e) the month when the capital to be repaid first exceeds one-half of the interest payment. 3 An insurance company issues an annuity of Rs10,000 per annum payable monthly in arrear for 20 years. The cost of the annuity is calculated using an effective rate of interest of 10% per annum. (a) Calculate the interest component of the first instalment of the sixth year of the annuity. (b) Calculate the total interest paid in the first 5 years. 4 A loan of Rs2,000 is to be repaid by a level annuity, payable annually in arrears for 18 years. The interest rate is 10% per annum for the first 6 years and 9% per annum thereafter. (a) What is the annual repayment? (b) Calculate the capital outstanding immediately after the 6th payment has been made. (c) Immediately after the 12th payment, the borrower makes an additional payment of Rs100. The interest basis remains the same. By how much should the remaining payments be reduced to ensure that the term of the loan remains the same? 5 A homeloan of Rs300,000 was granted on 10 February 2010 and was due to be repaid over 30 years by level monthly instalments in arrears of capital and interest. The repayments are calculated using a rate of interest of 3% per annum convertible monthly. However, due to a seasonal fluctuation in earnings, the borrower has been granted a "skip-payments" option not to make a monthly repayment in August each year for the duration of the loan, with the amount of the regular monthly payments for the remaining 11 months of the year being increased accordingly. 1

(a) Calculate the amount of the regular monthly repayments which are due for 11 months each year. (b) How does the "skip-payments" plan compare with the standard repayment plan (360 level monthly repayments) in terms of total interest paid over the full term of the loan. 6 A homeloan of Rs300,000 is due to be repaid over 30 years by level monthly instalments in arrears of capital and interest. The repayments are calculated using a rate of interest of 3% per annum convertible monthly. For the first 24 months, however, the borrower switched to an interest-only mortgage, paying only 50% of the interest due each month. At the end of this period, the borrower reverts to making level monthly instalments in arrears of capital and interest for the remaining term of the loan, with the amount of the regular monthly payments adjusted to take account of the additional interest owed during the 24-month period. Calculate the amount of this adjustment in monthly repayments. A loan of Rs11,820 was repayable by an annuity payable quarterly in arrears for 15 years. The repayment terms provided that at the end of each five-year period the amount of the quarterly repayment would be increased by Rs40. The amount of the annuity was calculated on the basis of an effective rate of interest of 12% per annum. (a) Find the initial amount of the quarterly repayment. (b) On the basis of the lenders original schedule find the amount of principal repaid in (i) the third year and (ii) the thirteenth year: (c) Immediately after paying the 33rd quarterly instalment the borrower requested that in future the repayments be of a fixed amount for the entire outstanding duration of the loan. The request was granted and the revised quarterly repayment was calculated on the original interest basis. Find the amount of the revised quarterly repayment: 8 A loan is repayable by an increasing annuity payable annually in arrears for 10 years. The repayment at the end of the first year is Rs1,000 and subsequent payments increase by Rs100 each year. The repayments were calculated using a rate of interest of 8% per annum effective. (a) Calculate the original amount of the loan. (b) Calculate the capital outstanding at the beginning of the 7-th year (i.e. immediately after the 6-th payment of interest and capital). (c) Immediately after making the 6-th payment of interest and capital, the interest rate on the outstanding loan is increased to 8.5% per annum effective. Calculate the amount of the 7-th payment if subsequent payments continue to increase by Rs100 each year and the loan is to be repaid by the original date, i.e. 10 years from the start of the loan.