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1. in the question 8.5% is repaid both interest and principal, then when do we pay the principal of the 9% ?
do we pay at the end of the loan period ???
2. usually those that do not repay interest and principal, we always assume the principal is always paid back at the end of the loan period ???
1. These are two different loans!! For the 8.5% loan the question says that the principal is paid at the end of the loan.
For the subordinated loan, there are 4 equal payments – part of the payment is interest and part is repayment of principal each year.2. Normally we assume just interest is payable each year and that the principal is repaid on redemption.
Sir plz. Can explain Show to fins remaing Value At 2nd year AMD interestel rate i dient understand Show to find interest. Rate FOR 4 year . 1st year ???
Plz Show The working of subordinated Joan interest and repaymnet of loant At year end
You should know (from Paper FM (old Paper F9)) that however a loan is repaid, then the PV of the repayments plus interest will always equal the amount of the loan (discounting is simple ‘removing’ the interest).
Given that here the repayments are an equal amount each year, then the PV must be the amount each year multiplied by the annuity factor. Therefore the repayment each year must be the PV (i.e. the amount of the loan) divided by the annuity discount factor.
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