ASM Practice Exam Question 6
Jan gives Ted a loan at 4% effective to be repaid by 10 annual payments of 100, followed by 5 annual payments of 200. Just after Ted makes the 5th payment, Jan and Ted discover that the payments should have been 10% higher than they were originally scheduled. They agree that Ted will make increased payments of K in the 6th through 10th years to adjust for error. The payments of 200 in the 11th to 15th years will not change . Determine K.
This is how I approached it:
I find the AV of both scenarios at the end of 15 years and set them equal
110 s angle 10 + 220 s angle * I^10 = 100 s angle 5 + K * s angle 5 * I^5 + 200 s angle 5 * I^10
However, the solution gives a different number. The book solves this by equating the outstanding balances at t = 5. How is this different from the AV method?
Last edited by mc2147; 05302015 at 02:17 AM..
