Hello all!
I was wondering if there was any particular way to find out the amount of the last payment (like in part dii of the attached question)?
Is there some way on the finance solver or do you have to use recursion rules or any other ways?
Thanks!
Eloise
I realise you asked this question a long time ago, but I thought I'd respond because I think the previous answer is not a recommended method, and it might be useful for exam revision. The best way to find the final payment of a reducing balance loan is the following.
1. Use finance solver to find the number of payments to reach future value = 0. It's likely that this will not exactly be a whole number, so round
up to the next whole number to get a whole number of payments. Call this number N.
2. Find the future value after N number of payments, call this FV. This will not be zero, because you are slightly overpaying the debt by rounding up the exact number of payments required to the whole number.
3. The final payment is the regular payment amount – that future value.
Example.
Find the final payment amount for a reducing balance loan of $500000 at 5% interest p.a., compounding monthly, with monthly payments of $3200.
Step 1: The number of payments required to reach a future value of 0 is 253.1.... Round this up to 254.
Step 2: The future value after 254 payments is 2563.109.... This means 254 payments of $3200 will
overpay the debt by $2563.11.
Step 3: Final payment is $3200 – 2563.11 = 636.89.