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Suppose Intr is annually compounded
- f& R: t( U5 T Month 0 Mon. 8 Mon. 12
! ~6 m2 r3 V8 TCash Principal X -750 -950
8 {+ m. Y, U$ P0 g4 wCash Intr (Should Pay) -X*9.5%*8/12 -(X-750)*9.5%*4/12 5 M/ A, f- |9 Q& Y
PV at mon 0 X -[750+X*9.5%*8/12] -[950+(X-750)*9.5%*4/12]
" `! |# c! H6 g /(1+7.75%*8/12) /(1+7.75%*12/12)
* F9 [3 |6 a) F- \+ g4 H1 p+ X# e
* L, G. W3 s7 w# Z& r7 Xthese 3 should add up to 0, i.e. NPV at month 0 is 0.# d4 B# W* s4 R! G
: [ E% `8 F& K C3 K' HConclusion X = 1729.8
& V# K4 X2 z/ e' K, R # v$ w1 {" \/ e) B: X
So, Initial borrowing was 1730 *(1+7.5%) 1859.5 approx. $1,860 $ ?8 \2 ~! N; Y
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