Jan bought her bought her house on december 31 and took a $10,000 mortgage as pa
ID: 2419631 • Letter: J
Question
Jan bought her bought her house on december 31 and took a $10,000 mortgage as part of the payment. The 10-year mortgage has a 10% nominal interest rate, but it calls for semiannal payments buginning next June 30. Next year Jan must report on her Tax Form the amount of annual interest payment that is included in her first two payments during the year. a.) What is the dollar amount of payment? How much principal is included? b.) How much interest is included in the first payment? How much principal is included? c.) How much annual interest payment in total must Jan report on Tax Form for the first year (two payments total)? d.) The payment is constant each time, why does the amount of interest payment change over time?
Explanation / Answer
Answer: We can calculate the total payment with the help of financial calculator we will need following values:
No. of payments=10*2 =20
Interest=10/2 =5%
PV= ($10,000)
FV=0
PMT=$802.43
Answer:a) Amount of Payment =$802.43
Answer:b) Interest=500
Principal=302.43
Answer:c) So total interest payment would be =$500+$484.88 =$984.88
Answer:d) Because We paid some principal part in each time.So Interest is calculated on remaining Principal balance so this is the main reason that the amount of interest payment change over time.
Period Beginning balance Total Payment Interest payment Difference Ending balance 1 10000 802.43 500 302.43 9697.57 2 9697.57 802.43 484.88 317.55 9380.02Related Questions
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