1. avatar says

    Hello Sir, can you please help me with this question?
    Loan taken = £2,000
    Interest reate = 10% per annum.
    The person wishes to make equal monthly repayments comprising interest and principal, over 3 yrs starting one month after the loan is taken out.
    What would be the monthly repayment on the loan?

    Sir can you please explain how to calculate this?
    Thank you

    • Profile photo of John Moffat says

      I don’t know where you got this question from, but I would be very surprised if it would be asked in the exam! :-)

      First you need to calculate the interest rate per month. If the monthly rate is r, then
      (1+r)^12 = 1.10. So r = 0.00797414 (or 0.797414%)

      Then you need to calculate the annuity discount factor for 36 periods, using the formula.
      Which is (1 – 1/((1.00797414)^36))/0.00797414 = 31.18646

      The monthly payment will be the amount of the loan divided by this annuity factor:
      2000 / 31.18646 = $64.13.

      (You had better check my arithmetic :-) )

      Again, I would be very surprised indeed if this were to be asked in a real F2 exam.

      • Profile photo of John Moffat says

        You are welcome.

        And no, although you are not wasting your time looking at the question, they do not ask that sort of question these days.

        In 2002, Paper F2 did not exist – it was a different exam with a different syllabus (more statistical). Also, in 2002 there were no multiple choice questions, whereas now it is entirely multiple choice.

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