3. Sally Stanford is buying a car that costs S12,000. She will pay S2000 immedia

Question

3. Sally Stanford is buying a car that costs S12,000. She will pay S2000 immediately and the remaining S10,000 in four annual end-of-year using constant principal payments. The annual interest is 15%. a. Prepare a cash low table to represent this situation. a. b. c. Prepare a cash flow table to represent this situation. What if the payment method of remaining $10,000 is interest only? Show the cash flow table. Show the cash flow table if the payment method is all at maturity for remaining $10,000.

Explanation / Answer

c) at maturity amount = 10000*(1+0.15)^4 = 17490 $

     Cash Flow $     Time

     -12000             0

     17490              4 yrs

b)     1 year interest = 10000*(1+0.15) - 10000 = 1500 $

     Cash Flow $     Time

     -12000             0

     1500             1 yrs

      1500             2 yrs

      1500             3 yrs

      11500             4 yrs

a)

Period
# Payment
Amount Principal
Part Interest
Part Balance
Owed 1 4,000.00 2,500.00 1,500.00 7,500.00 2 3,625.00 2,500.00 1,125.00 5,000.00 3 3,250.00 2,500.00 750.00 2,500.00 4 2,875.00 2,500.00 375.00 0.00

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