Odapagyan Foods Ltd is borrowing GH¢500,000 to finance a project involving an expansion of its existing factory. It has obtained an offer from Sika Bank. The terms of the loan facility are as follows:
Annual interest rate : 22%
Duration : 2 years
Interest method : compound interest with quarterly compounding
Payment plan : equal instalments at the end of each quarter
Required:
i) Compute the quarterly instalment. (3 marks)
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That is, the company will be required to pay GH¢78,932.01 at the end of each quarter to amortize the loan.
[Marks allocation: Interest factor = 1; Computation of instalment = 1; Final answer = 1]
ii) Prepare a loan amortisation schedule to show the periodic interest charges, instalment payments, principal payments, and balance of the loan at the end of each quarter. (7 marks)