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dear sir,
i am confused about interst payable. i feel the method used in P4 is different from p2.
example:P Bank,has agreed to lend 65000 in the form of a 9% loan,the interest is payable at the end of the year,on the loan amoutn outstanding at the start of each year,it is expected that TCompany will repay $3million of the outstanding loan at the end of the next 5 years.my answer is as follow:
year opening interest repament y/e
1 65000 5850 (3000) 67850
2 67850 6107 (3000) 70957
3 70957 6386 (3000) 74343
as this way calculated follwing years.
i am confused why my answer is wrong?
the correct answer is interest for yrs1 is 5850,yrs 2 is 5580,yrs 3 is 5310.thank you so much
Your answer is assuming the the interest each year is added to the amount of the loan. However, the question says that the interest is actually payable at the end of each year.
So, the interest for year 1 (5850) will have been actually paid over, and therefore the amount of the load outstanding is 65000 – 3000 = 62000. Which means that the second years interest will be 9% x 62000 = 5580
thank you,but when i shoud use this method and when i should use my above answer? how can i judge?
@johnmoffat said:
Your answer is assuming the the interest each year is added to the amount of the loan. However, the question says that the interest is actually payable at the end of each year.So, the interest for year 1 (5850) will have been actually paid over, and therefore the amount of the load outstanding is 65000 – 3000 = 62000. Which means that the second years interest will be 9% x 62000 = 5580
It is because they say that the interest is payable at the end of the year.
If the question had said that the interest is charged at the end of the year, then your figures would have been correct.
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