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Math Help - Valuation Mathematics

  1. #1
    Newbie
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    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
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  2. #2
    Grand Panjandrum
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    Re: Valuation Mathematics

    Quote Originally Posted by Reidy7 View Post
    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
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