Question Tag: Loan amortization

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  • 20 Marks

QT – May 2016 – L1 – Q7 – Mathematics of Business Finance

Construct an amortization schedule for a loan of GH¢3,000 over 12 years with an annual interest rate of 2%.

A loan of GH¢3,000 at an effective annual interest rate of i = 12% is amortized by means of 12 annual payments, beginning a year after the loan is taken.

Hint: The schedule should have the following columns: Payment, Interest Due, Principal Repaid, and Outstanding Balance.

Required:
Construct an amortization schedule.

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  • 10 Marks

QT – Nov 2016 – L1 – Q4b – Mathematics of Business Finance

Calculate the monthly amortization payments, total interest, and equity for a house loan at 9% interest over 25 years.

Maame TorTor has just purchased a GH¢70,000.00 house and made a down payment of GH¢15,000.00.

Required:
i) Determine how much money is needed to amortize (i.e., pay monthly) the balance at a 9% interest rate compounded annually for 25 years. (5 marks)
ii) Determine the total interest for the 25 years. (2 marks)
iii) Determine after 20 years the equity she has in the house. (3 marks)

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  • 6 Marks

QT – May 2018 – L1 – Q1b – Mathematics of Business Finance

Calculate the loan instalment for the purchase of machinery over five years with a 9% interest rate.

The Managing Director of a small manufacturing company is considering buying a piece of machinery which costs GH¢15,000.

Required:
If the machine is to be purchased by taking a five-year loan at 9% per annum, which will be paid off in five equal annual instalments (starting a year after the loan is taken out), calculate the size of each instalment to the nearest whole number. (6 marks)

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  • 10 Marks

FM – Nov 2020 – L2 – Q3a – DCF: Specific applications | Discounted cash flow

Calculate the present value of payments under cash and credit purchase options, and recommend the better option.

The directors of PDS Foods Ltd (PDS) are considering two payment options for the purchase of a new cereal processing plant:

Option 1: Cash purchase option
This option requires immediate payment of the full price of the plant. If PDS chooses this option, it will pay the cash price of GH¢800,379 today. PDS plans to raise the required amount by borrowing from a bank. Conso Bank Ghana has offered to lend the cash price to PDS at an annual interest rate of 15% with monthly compounding. The loan, interest, and other charges are to be amortized by even instalments of GH¢27,952.26 each made at the end of each month over the next three years.

Option 2: Credit purchase plan
Under this option, the vendor requires an immediate down payment followed by a series of even payments. If PDS chooses this option, it will be required to pay GH¢50,000 today. This will be followed by the payment of GH¢116,100 at the end of each quarter over the next two years. The interest rate implicit in this credit purchase plan is 20% per annum.

Required:

i) Find the present value of all the payments under the cash purchase option. (5 marks)
ii) Find the present value of all the payments under the credit purchase option. (4 marks)
iii) Which of the two options do you recommend to the company? Explain. (1 mark)

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  • 10 Marks

FM – May 2020 – L2 – Q3a – Simple interest and compound interest

Calculate the quarterly loan installment and prepare an amortization schedule for a loan with compound interest and equal quarterly payments.

Odapagyan Foods Ltd is borrowing GH¢500,000 to finance a project involving an expansion of its existing factory. It has obtained an offer from Sika Bank. The terms of the loan facility are as follows:

  • Annual interest rate: 22%
  • Duration: 2 years
  • Interest method: compound interest with quarterly compounding
  • Payment plan: equal installments at the end of each quarter

Required:

i) Compute the quarterly installment.
(3 marks)

ii) Prepare a loan amortization schedule to show the periodic interest charges, installment payments, principal payments, and balance of the loan at the end of each quarter.
(7 marks)

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  • 20 Marks

QT – May 2016 – L1 – Q7 – Mathematics of Business Finance

Construct an amortization schedule for a loan of GH¢3,000 over 12 years with an annual interest rate of 2%.

A loan of GH¢3,000 at an effective annual interest rate of i = 12% is amortized by means of 12 annual payments, beginning a year after the loan is taken.

Hint: The schedule should have the following columns: Payment, Interest Due, Principal Repaid, and Outstanding Balance.

Required:
Construct an amortization schedule.

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  • 10 Marks

QT – Nov 2016 – L1 – Q4b – Mathematics of Business Finance

Calculate the monthly amortization payments, total interest, and equity for a house loan at 9% interest over 25 years.

Maame TorTor has just purchased a GH¢70,000.00 house and made a down payment of GH¢15,000.00.

Required:
i) Determine how much money is needed to amortize (i.e., pay monthly) the balance at a 9% interest rate compounded annually for 25 years. (5 marks)
ii) Determine the total interest for the 25 years. (2 marks)
iii) Determine after 20 years the equity she has in the house. (3 marks)

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  • 6 Marks

QT – May 2018 – L1 – Q1b – Mathematics of Business Finance

Calculate the loan instalment for the purchase of machinery over five years with a 9% interest rate.

The Managing Director of a small manufacturing company is considering buying a piece of machinery which costs GH¢15,000.

Required:
If the machine is to be purchased by taking a five-year loan at 9% per annum, which will be paid off in five equal annual instalments (starting a year after the loan is taken out), calculate the size of each instalment to the nearest whole number. (6 marks)

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  • 10 Marks

FM – Nov 2020 – L2 – Q3a – DCF: Specific applications | Discounted cash flow

Calculate the present value of payments under cash and credit purchase options, and recommend the better option.

The directors of PDS Foods Ltd (PDS) are considering two payment options for the purchase of a new cereal processing plant:

Option 1: Cash purchase option
This option requires immediate payment of the full price of the plant. If PDS chooses this option, it will pay the cash price of GH¢800,379 today. PDS plans to raise the required amount by borrowing from a bank. Conso Bank Ghana has offered to lend the cash price to PDS at an annual interest rate of 15% with monthly compounding. The loan, interest, and other charges are to be amortized by even instalments of GH¢27,952.26 each made at the end of each month over the next three years.

Option 2: Credit purchase plan
Under this option, the vendor requires an immediate down payment followed by a series of even payments. If PDS chooses this option, it will be required to pay GH¢50,000 today. This will be followed by the payment of GH¢116,100 at the end of each quarter over the next two years. The interest rate implicit in this credit purchase plan is 20% per annum.

Required:

i) Find the present value of all the payments under the cash purchase option. (5 marks)
ii) Find the present value of all the payments under the credit purchase option. (4 marks)
iii) Which of the two options do you recommend to the company? Explain. (1 mark)

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  • 10 Marks

FM – May 2020 – L2 – Q3a – Simple interest and compound interest

Calculate the quarterly loan installment and prepare an amortization schedule for a loan with compound interest and equal quarterly payments.

Odapagyan Foods Ltd is borrowing GH¢500,000 to finance a project involving an expansion of its existing factory. It has obtained an offer from Sika Bank. The terms of the loan facility are as follows:

  • Annual interest rate: 22%
  • Duration: 2 years
  • Interest method: compound interest with quarterly compounding
  • Payment plan: equal installments at the end of each quarter

Required:

i) Compute the quarterly installment.
(3 marks)

ii) Prepare a loan amortization schedule to show the periodic interest charges, installment payments, principal payments, and balance of the loan at the end of each quarter.
(7 marks)

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