Question2 Dr Sangster borrows 5000 at 15year compounded mont

Question2 Dr. Sangster borrows $5000 at 15%/year compounded monthly. He wishes to repay the loan with 12 end-of-month payments. He wishes to make his first payment 3 months after receiving the $5000. He also wishes that, after the first payment, the size of each payment be 10% greater than the previous payment. What is the size of his sixth payment?

Solution

Month Payment PVF @1.25% Present Value 0 0 1 0 1 0 0.987654 0 2 0 0.975461 0 3 X 0.963418 0.9634 X 4 1.1X 0.951524 1.047 X 5 1.21X 0.939777 1.1372 X 6 1.33X 0.928175 1.235 X 7 1.46X 0.916716 1.338X 8 1.61X 0.905398 1.458 X 9 1.77X 0.894221 1.583 X 10 1.95X 0.883181 1.722 X 11 2.14X 0.872277 1.867 X 12 2.354 X 0.861509 2.029 X 13 2.589 X 0.850873 2.203 X 14 2.848 X 0.840368 2.393 X Present value 18.975 X As per probem: 5000 = 18.975 X X = $ 263.50 Sixth Instalment: 1.61 * 263.50 = $ 424.235