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18 December, 18:35

Josh purchased a baseball team for 100 million dollars and financed the entire purchase price at a nominal rate of interest payable 12 times per year at 6% per annum. Josh planned to repay the loan with 10 annual payments of equal amount beginning one year after the loan began. Right after Josh made his fourth annual payment, he refinanced the loan at an effective annual interest rate of 5% for 15 more years. Josh repaid this new 15 year loan with equal payments at the end of each year. How much were these new payments for the refinanced loan?

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  1. 18 December, 21:36
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    4 millions

    Explanation:

    First, we will check how much was amortizate for the first loan:

    Principal 100 million

    on 10 equal payment

    amortization per year 100/10 = 10 millions

    we refinance at the end of the fourth installment

    10 x 4 = 40 millions

    The principal at the end of year four:

    Principal 100 millions - 40 millions = 60 millions

    This amount will be paid on 15 years with 15 equal payment

    60 million / 15 years = 4 millions
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