TVM Shweser Exam2/19PM borrowed, interest, investor, payments, starting

wildrose

Five years ago, an investor borrowed $5000 from a financial institution that charged 6% annual interest and immediately took his family to live in Nerpal. He made no payments during the time he was away. When he returned, he agreed to repay the orinignal loan pluis the accrued interest by making 4 endofyear payments starting one hear after he returned. If the ineetest erate on the loan is held constant at 6% per year, what annual payment must the investor make in order to retire the laon?
A 1338.23
B 1588.45
C 1638. 23

dontknow1987

I see it..lol....too much fixed income stuff...

farrukhsadiq

lol I see. So thats the bank standard huh interest compound on interest.

Thanks.

Ionutzakis

elcfa..thanks a lot...yes there was a typo -5 not 4...

my confusion is between accrued interest and interest payments...more like a coupon and a discount bond... am I missing something basic here?

I went about 300X10=3000
Annuity=PMT(6%,5,3000+5000)=1899

It appears I need real help here...what tells you between a coupon payment vs just accrual?

LokiDog2

5000* (1.06) ^5 = 6691

Annuity = PMT(6%;4;6691;) = 1931???

I think there is a typo since if I change to 5 end of year payments instead of 4, I will have 1588,45