Answer to Question #100932 in Finance for Usman Tariq

Question

A company is negotiating today a long term loan of £40 million, the interest rate on the loan will be 7% and the loan will be repaid in 6 equal instalments, with the first instalment being due at the end of year two. Interest will be charged on the outstanding balance of the loan and will be accumulated for the first year when no re-payment will be made. What is the annual instalment required?

Answer 1

$I = (P×r×(1 + r)^n)/((1 + r)^n - 1) = (40,000,000×0.07×1.07^7)/(1.07^6 - 1) = 8,979,260.23.$