Cash & Treasury Management Assement 1 - Task 7 B

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Vicki92
Vicki92 Registered Posts: 3
in Cash and Treasury Management
I literally CAN NOT figure out this task! The answer is 14% but how!?

any help appreciated, thanks x

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  • LewisScarr
    LewisScarr Registered Posts: 12
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    Okay, so the first thing you should do is work out the total cost of the loan.
    The workings are as follows, £8000 * 120 (which is the total monthly repayments in ten years) = £960,000
    Then you need to split the capital amount and interest, so take away the £960,000 which is the total of both the capital and interest from the original loan of £400,000. The interest is therefore £560,000 divide this by the capital of £400,000 and then times by 100 for the percentage. You should get 140, then divide this by ten to give you the annual interest.
    Hope this helps.
  • HarryNK
    HarryNK Registered Posts: 1
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    @LewisScarr Wondering if you can help with the last bit of your answer. What is the reasoning behind dividing by 10 at the end to work out the annual interest? My exams next week and its the small questions like this one that I keep tripping up on. Any help would be great, cheers
  • LewisScarr
    LewisScarr Registered Posts: 12
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    @HarryNK The total interest for the ten years would 140%. But the question required the annual interest rate so you just need to divide it by the number of years to give you the correct answer of 14%.
    Just read the question and look for the traps. Good luck.

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