A loan of RMX is repaid with level annual payments at the end of each year for 10 years. You are given: i) The interest

Question

A loan of RMX is repaid with level annual payments at the end of each year for 10 years. You are given: i) The interest paid in the first year is RM3600; and ii) The principal repaid in the 6th year is RM4871. Calculate X.

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The formula for calculating the loan EMI amount is as below. where · A = Level payment Amount per period · P = initial Principal (loan amount) · r = interest rate per period · n = total number of payments or periods Further, Principal Repayment (PR) in any time period (i), is given by PRi = (A – r*P)*(1 + r)^(i-1) (In the 6th period, Principal repayment was 4,871. Interest at end of period 1, I1 = P*r or 3600 = P*r We have two equations and two unknowns, namely P and r. We can use Excel goal seek function to find the respective variables. Hence, The Principal X is RM 48,000 Principal (X) 48,000.00 Time Period (n) 10 Interest rate (r) 7.50% Period Opening Principal Annual Payments Interest repayment Principal repayment Closing Balance 1 48,000 6,993 3,600 3,393 44,607 2 44,607 6,993 3,346 3,647 40,960 3 40,960 6,993 3,072 3,921 37,039 4 37,039 6,993 2,778 4,215 32,824 5 32,824 6,993 2,462 4,531 28,293 6 28,293 6,993 2,122 4,871 23,422 7 23,422 6,993 1,757 5,236 18,185 8 18,185 6,993 1,364 5,629 12,556 9 12,556 6,993 942 6,051 6,505 10 6,505 6,993 488 6,505 -0 Using PMT function to calculate Annual payments Using IPMT function to calculate Interest payments Using Goal seek function and few iterations, you can calculate Principal (X) please see the attached file for the complete solution.

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A loan of RMX is repaid with level annual payments at the end of each year for 10 years

Expert Solution

Archived Solution

Principal (X)	48,000.00
Time Period (n)	10
Interest rate (r)	7.50%


Period	Opening Principal	Annual Payments	Interest repayment	Principal repayment	Closing Balance
1	48,000	6,993	3,600	3,393	44,607
2	44,607	6,993	3,346	3,647	40,960
3	40,960	6,993	3,072	3,921	37,039
4	37,039	6,993	2,778	4,215	32,824
5	32,824	6,993	2,462	4,531	28,293
6	28,293	6,993	2,122	4,871	23,422
7	23,422	6,993	1,757	5,236	18,185
8	18,185	6,993	1,364	5,629	12,556
9	12,556	6,993	942	6,051	6,505
10	6,505	6,993	488	6,505	-0

Using PMT function to calculate Annual payments
Using IPMT function to calculate Interest payments
Using Goal seek function and few iterations, you can calculate Principal (X)