Question

A man borrows $50,000 towards the cost of a house. Compound interest is charge on the loan at 125 per annum. He agrees to pay back the loan in 25 equal installments, at yearly intervals, the first repayment being made exactly 1 year after the loan is taken out. Calculate the value of each installment

Answer 1

I assume you really mean 12.5% per annum.

R = Pi/[1 - (1+i)^(-n)]

where R = the periodic payment, n = the number of interest bearing periods and the number of periodic payments and i = the periodic interest in decimal form.

Thus, R = 50,000(.125)/[(1 - (1.125)^(-25)] = $5,921.10 per year.