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    Borrowing and Repaying a Loan

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    Peter borrows a loan of $328,337.1919 from George. The loan will be repaid over the coming 24 years, starting from the end of the next years. The real interest expense for the first year is $15,785.44189. Expected inflation rate is assumed at 4% per annum.

    After receiving the annual installment, George will reinvest it immediately until the end of the loan. The reinvestment rate is 12%, compounded semi-annually. Please answer the following questions:

    a) What is the Nominal Interest rate of the Loan?

    b) How much load does Peter repay immediately after paying 12th installment?

    c) What is the reinvestment rate, if compounded annually (in percentage)?

    d) How much cash will George accumulate at the end of the load?

    e) How much is George total simple interest incomes and total interest on interest incomes at the end of the loan?

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    Solution Preview

    Attached is the Excel file with the computations. You can see the formulas used if you click in specific cells

    Loan Amount $328,337.1919
    Loan ...

    Solution Summary

    This solution answers questions regarding borrowing and repaying a loan.