The Desai Company just borrowed R1,000,000 for 3 years at a quoted rate of 8 percent, quarterly compounding.The loan is to be amortised in end-of-quarter payments over its 3-year life.How much interest (in Rands) will your company have to pay during the second quarter?

Question

Quizplus · Accepted Answer

First, we need to calculate the quarterly interest rate:
r = (1 + 0.08/4) - 1 = 0.0194
Next, we need to calculate the quarterly payment amount using the formula:
P = r(PV) / (1 - (1 + r)^(-n))
where PV is the present value of the loan, n is the total number of quarters, and P is the quarterly payment amount.
PV = R1,000,000
n = 3 years x 4 = 12 quarters
P = 94,507.43
Now we can calculate the interest paid during the second quarter:
Interest paid = (PV - P) x r = (R1,000,000 - R94,507.43) x 0.0194 = R18,508.81
Therefore, the answer is B.

The Desai Company Just Borrowed R1,000,000 for 3 Years at a Quoted