Your uncle borrows $54,000 from the bank at 12 percent interest over the ten-yea

Question

Your uncle borrows $54,000 from the bank at 12 percent interest over the ten-year life of the loan. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Annual payments $__________

b. How much of his first payment will be applied to interest? To principal? (Do not round intermediate calculations. Round your final answers to 2 decimal places.) First Payment

Interest $____________

Principal $_____________

c. How much of his second payment will be applied to each? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

Second Payment Interest $____________

Principal $_________________

Explanation / Answer

1. Annual Payment - $774.74

2. $234.7 towards principal, $540 towards interest.

3. $237.09 towards principal, $537.69 towards interest.

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