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A bank has just granted a loan of £15,000 to a business to be repaid in ten equal instalments, annually in arrears. The rate of interest is 5% per annum effective. (i) Calculate the amount of the

A bank has just granted a loan of £15,000 to a business to be repaid in ten equal instalments, annually in arrears. The rate of interest is 5% per annum effective. (i) Calculate the amount of the annual repayment. [3 marks] (ii) Calculate the duration (discounted mean term) of the repayments. [3 marks) (b) Use the algebraic approach to find the present value of a perpetuity which pays £200 at the end of each month for the first 5 years, £1,500 at the end of each quarter for the next 5 years, and from the 11th year pays £1,000 at the end of every six-month forever. The annual effective interest rate is 7%.

Apr 17 2021 View more View Less

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