LKI Ltd has borrowed $250,000 from Northpac Bank for a ten-year period with loan repayments to be made on a semi-annual basis

Finance Sep 15, 2020

LKI Ltd has borrowed $250,000 from Northpac Bank for a ten-year period with loan repayments to be made on a semi-annual basis. The fixed interest rate on the loan is 12% p.a. with interest compounded semi-annually. The total principal repaid by LKI Ltd in the first six-month period is closest to:

Expert Solution

PV=$250000

Semi annual interest, r=12%/2=6%

n=10*2=20

Paymemt per period,A will be given by PV=A*(1-(1+r)^-n)/r

Or, 250000=A*(1-(1+6%)^-20)/6%

Or, 250000=A*(1-1.06^-20)/0.06

Or, 250000=A*(1-0.3118)/0.06

Or,A=250000*0.06/0.6882

Or,A=$21796.14

Interest for forst 6 month period=6%*250000=$15000

Hence Principal paid= 21796.14-15000=$6796.14

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