Valuation Mathematics

• Dec 7th 2011, 04:00 PM
Reidy7
Valuation Mathematics
Hi

New on here and hoping for some valuation help!

Have an exam tomorrow and one of the questions is:

The rate of interest charged by a bank for a loan for repairs to a property is 6%. The
amount borrowed is £3,500 and the loan is to be repaid in 4 each annual instalments.
How much is each instalment?
(a) £1,010 (b) £2,020 (c) £1,111 (d) £2,222 (e) £1, 212

Now I think I do this with a Annual Sinking Fund but am not sure. Would anyone be kind enough to walk me through an answer?

Thanks
• Dec 9th 2011, 10:40 PM
CaptainBlack
Re: Valuation Mathematics
Quote:

Originally Posted by Reidy7
Hi

New on here and hoping for some valuation help!

Have an exam tomorrow and one of the questions is:

The rate of interest charged by a bank for a loan for repairs to a property is 6%. The
amount borrowed is £3,500 and the loan is to be repaid in 4 each annual instalments.
How much is each instalment?
(a) £1,010 (b) £2,020 (c) £1,111 (d) £2,222 (e) £1, 212

Now I think I do this with a Annual Sinking Fund but am not sure. Would anyone be kind enough to walk me through an answer?

Thanks

Because this is a multiple choice you do not need to do anything cleverer that eliminate the impossible.

If you pay interest on the principle every year rather than on the remaining un-repaid part you would pay altogether £3500+4*3500*0.06=£4340. Hence four annual payments of £1085 is more than enough to repay the loan in four equal annual payments. Hence if any of the options are correct it must be (a).

CB