a) To determine the level of quarterly payments, we first need to calculate the total amount that needs to be repaid over the four-year loan period.
Total amount to be repaid = Principal + Total interest
Total amount to be repaid = Tshs. 8,000,000 + (0.10 x Tshs. 8,000,000 x 4)
Total amount to be repaid = Tshs. 8,000,000 + Tshs. 3,200,000
Total amount to be repaid = Tshs. 11,200,000
Since the quarterly payments are equal, we divide the total amount to be repaid by the total number of quarters in four years (16 quarters) to determine the level of quarterly payments.
Level of quarterly payments = Total amount to be repaid / Total number of quarters
Level of quarterly payments = Tshs. 11,200,000 / 16
Level of quarterly payments = Tshs. 700,000
b) The farmer will only receive the principal amount of the loan from the bank, which is Tshs. 8,000,000.
c) The actual rate of interest from the bank can be calculated using the formula for compound interest:
Total amount to be repaid = Principal x (1 + Interest rate) ^ Number of years
11,200,000 = 8,000,000 x (1 + 0.10) ^ 4
Solving for the interest rate:
(1 + Interest rate) ^ 4 = 11,200,000 / 8,000,000
Interest rate = (11,200,000 / 8,000,000) ^ (1/4) - 1
Interest rate = 1.4^(1/4) - 1
Interest rate ≈ 0.0935 or 9.35%
Therefore, the actual rate of interest from the bank is approximately 9.35%.
4. A farm can finance a tractor purchase with Tshs. 8,000,000 loan at the CRDB Bank. The financing terms include a four-year loan, a 10 percent annual interest rate, and equal quarterly repayments of principal and interest. Given this information.
a) Determine the level of quaterly payments.
bj How much money will a farmer get from the bank?
c) What is the actual rate of interest from the bank?
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