Your uncle borrows $54,000 from the bank at 12 percent interest over the ten-yea
ID: 2753681 • Letter: Y
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
Answer : Annual payment
Principal (P) = 54000
Rate of Interest (r) = 12 %
Tenure (n) = 10 Years
Equal annual Payment = P(r(1+r)^n)/((1+r)^n-1)
= 54000 (0.12(1+0.12)10 /((1+0.12)10-1
= $ 9557.14
Equal annual Payment = $ 9557.14
Answer (b)
Interest = 54000*12% = 6480
Principal paid = installment amount - interest paid
= 9557.14 -6480
= 3077.14
Interest $ 6480.00
Principal $ 3077.14
Answer - C
Interest in second payment will be = 50922.86*12% = 6110.74
Principal in IInd installment = installment amount - interest paid
= 9557.14 -6110.74
= 3466.40
Interest $ 6110.74
Principal $ 3466.40
Year Principal Installment Interest Principal closing balance 1 54000.00 9557.14 6480.00 3077.14 50922.86Related Questions
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