Question

Topit Company is known for its handbag designs. The company is expanding and have decided to open a new branch in Kuantan which will cost RM 500000. The company is considering taking a 20 years loan from a local bank. The company received two different offers, one from Bank A and the other from Bank B. You have been approached to advise the company of the financing options that have been identified to facilitate this expansion. You need to perform the necessary quantitative analyses (as given below) and prepare a report for TopIt Company, where you describe your findings and make appropriate recommendations.

Bank A charges an interest of 9% per annum compounded quarterly.
Calculate the quarterly payments that have to be made by the company on this loan (to 2 decimal places).

Answer 1

The quarterly payments that need to be made by Topit Company on the loan from Bank A will be approximately RM 13,531.88.

How to calculate the quarterly payments

To calculate the quarterly payments that need to be made by the company on the loan from Bank A, use the formula for calculating the quarterly payment of a loan with compound interest:

Payment =
`(P * r * (1 + r)^n) / ((1 + r)^n - 1)`

Where:

P = Principal amount (loan amount)

r = Quarterly interest rate

n = Total number of quarterly payments

Given information:

Principal amount (P) = RM 500,000

Annual interest rate = 9%

Quarterly interest rate (r) = Annual interest rate / 4

Number of years (t) = 20

Number of quarterly payments (n) = Number of years * 4

Let's calculate the quarterly payment:

Quarterly interest rate (r) = 9% / 4 = 0.09 / 4 = 0.0225

Number of quarterly payments (n) = 20 * 4 = 80

Payment =
`(500,000 * 0.0225 * (1 + 0.0225)^8^0) / ((1 + 0.0225)^8^0 - 1)`

Using a calculator or spreadsheet software, calculate the value of the payment:

Payment ≈ RM 13,531.88.

Therefore, the quarterly payments that need to be made by the company on the loan from Bank A will be approximately RM 13,531.88.

Topit Company is known for its handbag designs. The company is expanding and have decided to open a new branch in Kuantan which will cost RM 500000. The company is considering taking a 20 years loan from a local bank. The company received two different offers, one from Bank A and the other from Bank B. You have been approached to advise the company of the financing options that have been identified to facilitate this expansion. You need to perform the necessary quantitative analyses (as given below) and prepare a report for TopIt Company, where you describe your findings and make appropriate recommendations.

Bank A charges an interest of 9% per annum compounded quarterly.

Calculate the quarterly payments that have to be made by the company on this loan (to 2 decimal places).