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CM1 ch-10, page 24

S

Shubh Anand

Member
In question 10.9(iv) , the amount of final repayment would be simply twice of the value obtained in 10.9(i) .
After 6 years all the repayments are simply double, then why it is calculated again using different concepts ?
 
In Q10.9(iii) we calculate that 7 more years of payments at twice the original amount are needed to repay the loan. However, this is not exact as we round up from n = 6.9949 to 7. This indicates that 7 years of payments at twice the original amount will actually be a bit too much (ie we overpay the loan). So we will make 6 years and 11 months of payments at twice the original amount, and then a final payment at time 7 years calculated to pay off the loan exactly. The final payment will be a bit less than twice the original repayment amount. This is the calculation in (iv).
 
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