Financial Services Information Systems CO7218
Surgery 4

1. Calculate the first two payments using Equal Total Payments method.
Total amount of loan (A): £100,000
Annual interest rate applicable for payment in period n (Rn): 5%
Number of loan periods (N): 36 months

Answer
Payment1 = (Rn * A) / [1 - (1 +Rn)-N ]
= (Rn * A) * (1 + Rn)N / (1 + Rn)N - 1
= (0.004 * 100,000) * (1+0.004)36 / (1+0.004)36 – 1
= (400*1.15455) / 0.15455
= £2988.15

PP1 = Payment1*(1+Rn)-(1+N-n)
= Payment1 / (1+Rn)(1+N-n)
= 2988.15 / (1.004)1+36-1
= 2988.15 / (1.004)36
= 2988.15 / 1.1545
= £2588.26

INT1 = Payment1- PP1
= 2988.15 – 2588.26
= £399.89

OB1 = (INT1/ Rn) – PP1
= (399.89/0.004) – 2588.26
= £97,384.24

Payment2 = (Rn * A) / [1 - (1 +Rn)-N ]
= (Rn * A) * (1 + Rn)N / (1 + Rn)N - 1
= (0.004 * 100,000) * (1+0.004)36 / (1+0.004)36 – 1
= (400*1.15455) / 0.15455
= £2988.15

PP2 = Payment2*(1+Rn)-(1+N-n)
= Payment2 / (1+Rn)(1+N-n)
= 2988.15 / (1.004)1+36-2
= 2988.15 / (1.004)35
= 2988.15 / 1.149
= £2600.65

INT2 = Payment2- PP2
= 2988.15 – 2600.65
= £387.50

OB2 = (INT2/ Rn) – PP2
= (387.50/0.004) – 2600.65
= £94,274.35

No Payment
Amount
Principal
Amount
Interest
Amount
Outstanding
Balance
1 £2988.15 £2588.26 £399.89 £97,384.24
2 £2988.15 £2600.65 £387.50 £94,274.35