The firm has contacted a bank to negotiate a loan to purchase the legal tech' software. A loan of £10,000 will be needed and the bank has offered three options, each to begin on 1st February 2023: (1) (ii) £10,000 loan at 6% simple interest. The entire loan is to be repaid in one lump sum after five years, with interest paid at the end of each year of the loan. £10,000 loan at 4% compound interest with amortised monthly repayments for five years (iii) £10,000 loan at 4.5% compound interest, with both interest and principal to be paid in one lump sum at the end of five years. Calculate the total of interest to be paid under each of the three options. Show your workings in full.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Internal Rate of Return is used to estimate the profit of potential investments.
However, this can be used in Firms to determine if an investment is worth
pursuing or buying.
How might the firm use IRR to make a decision about the possible
investment? Internal Rate of Return is used to measure how the Firm will make
profits or lose money in the project. Therefore, it makes it easier to determine
the profitability and the higher the Internal Rate of Return the higher the profit
comes into the company (business).
Do NOT simply cut and paste information from the web - answer in your own words.
QUESTION 5
The firm has contacted a bank to negotiate a loan to purchase the legal tech' software.
A loan of £10,000 will be needed and the bank has offered three options, each to begin
on 1st February 2023:
(0)
(ii)
(III)
£10,000 loan at 6% simple interest. The entire loan is to be repaid in one lump
sum after five years, with interest paid at the end of each year of the loan.
£10,000 loan at 4% compound interest with amortised monthly repayments for
five years
£10,000 loan at 4.5% compound interest, with both interest and principal to be
paid in one lump sum at the end of five years.
Calculate the total of interest to be paid under each of the three options. Show
your workings in full.
Accessibility: Investigate
acer
9°C
Transcribed Image Text:Paragraph Styles Internal Rate of Return is used to estimate the profit of potential investments. However, this can be used in Firms to determine if an investment is worth pursuing or buying. How might the firm use IRR to make a decision about the possible investment? Internal Rate of Return is used to measure how the Firm will make profits or lose money in the project. Therefore, it makes it easier to determine the profitability and the higher the Internal Rate of Return the higher the profit comes into the company (business). Do NOT simply cut and paste information from the web - answer in your own words. QUESTION 5 The firm has contacted a bank to negotiate a loan to purchase the legal tech' software. A loan of £10,000 will be needed and the bank has offered three options, each to begin on 1st February 2023: (0) (ii) (III) £10,000 loan at 6% simple interest. The entire loan is to be repaid in one lump sum after five years, with interest paid at the end of each year of the loan. £10,000 loan at 4% compound interest with amortised monthly repayments for five years £10,000 loan at 4.5% compound interest, with both interest and principal to be paid in one lump sum at the end of five years. Calculate the total of interest to be paid under each of the three options. Show your workings in full. Accessibility: Investigate acer 9°C
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