Loan Schedules Chapter 9.

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Killo88

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In the notes it says about the prospective method of calculating the loan outstanding that " The loan outstanding at time t is the present value at time t of the future repayment instalments".
In the CMP pack for CT1, Chapter 9, Pg 9 there is an example in which you must calculate the loan outstanding after the second repayment. In the solution they use the prospective method to get an answer of 31781. I have no idea how they formed this equation to get this answer. I got the PV at the time of the second payment for the last 3 payments and got an answer of 31067.

Any explanation of this example on pg 9 of Loan Schedules would be very much appreciated.
 
Not sure what you've done, but they've discounted the payment at time 3 for one year at 8%, then added on the PV of the payment at time 4 (discounting for one year at 8% and one year at 12%), and the PV of payment at time 5 (one year at 8% and two years at 12%).
 
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