Your uncle borrows $70,000 from the bank at 12 percent interest over the ten-yea
ID: 2808263 • Letter: Y
Question
Your uncle borrows $70,000 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.)
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.)
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.)
Explanation / Answer
a Present Value $70,000 Interest Rate 12% Number of payments 10 Using the PMT function in excel we can calculate the annual payments to be made ($12,388.89) He should pay $ 12388.89 annually towards principal and interest We would create amortization table to check the above answer and also to calculate the below two answers Years Beg Balance Interest Principal Total payment End Balance 1 $70,000 $8,400.00 $3,988.89 $12,388.89 $66,011 2 $66,011 $7,921.33 $4,467.56 $12,388.89 $61,544 3 $61,544 $7,385.23 $5,003.66 $12,388.89 $56,540 4 $56,540 $6,784.79 $5,604.10 $12,388.89 $50,936 5 $50,936 $6,112.29 $6,276.60 $12,388.89 $44,659 6 $44,659 $5,359.10 $7,029.79 $12,388.89 $37,629 7 $37,629 $4,515.53 $7,873.36 $12,388.89 $29,756 8 $29,756 $3,570.73 $8,818.16 $12,388.89 $20,938 9 $20,938 $2,512.55 $9,876.34 $12,388.89 $11,062 10 $11,062 $1,327.38 $11,061.51 $12,388.89 $0 b Interest Payment $8,400 Principal payment $3,988.89 Total Payment in First year $12,388.89 c Interest Payment $7,921 Principal payment $4,467.56 Total Payment in First year $12,388.89
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