please help with this Q: Sentry has arranged to finance the investment with a 30-year, 7% interest only loan, with monthly payment and a face value equal to 80% of the initial investment . ( Investment 40m) What is the annual payment? Answer in the book is 2,240,000 Using i: 0.5833 n:360 pv:32m fv:0 pmt: 212,896*12 = 2,554,761! Any idea? Reference: Q 31-36 Level 2 V1 Exam 3 Morning Session 2009
The key is “interest only” Not an amortizing loan So all you pay is 40,000*0.8*(0.07/12) each month comes out to 2,240,000 a year… Note that these silly things would rape you on the exam. Learn to read the question slowly…if 2,554,761 was one of the options, you would have failed.
Much appreciated gulfcfa. You’re definitely right, reading Qs carefully under pressure is a skill to build
good call gulf