After Shipra got a job, the first thing she bought was a new car. She took out a

Question

After Shipra got a job, the first thing she bought was a new car. She took out an amortized loan for $45,000-with no ($0) down payment. She agreed to pay off the loan by making annual payments for the next four years at the end of each year. Her bank is charging her an interest rate of 6% per year. Yesterday, she called to ask that you help her compute the annual payments necessary to repay her loan Calculate the annual payment and complete the following loan amortization table: Beginning Amount Interest Paid Principal Paid Year Payment Ending Balance 1 $45,000.00 -$0.02

Explanation / Answer

Annual payment = Loan amount / PVIFA = 45000 / 3.4651056 = 12986.62

PVIFA at i = 6% and n = 4 Years = [ 1 - ( 1 + i )-n ] / i = [ 1 - (1.06)-4 ] / 0.06 = 3.4651056

Explanation

Interest paid = Year's beginning balance * 6%

Principal paid = Payment - Interest paid

Endinng Balance = Beginning balance - Principal paid.

Question - 2

12800 * ( 1 + i )3 = 16,124.31

( 1 + i )3 = 16124.31 / 12800 = 1.25971171875

1 + i = cube root of ( 1.25971171875 )

i = 1.0799999 - 1 = 0.08 ......... or 8 % ......... option - B

Question - 3

30000 * (1.08i )n = 42415.85

( 1 + i )n = 42415.85 / 30000 = 1.41386167

n * Log (1.08) = Log (1.41386167)

n * ( 0.03342375 ) =  0.15040692

n =  0.15040692 / 0.03342375 = 4.5 Years ........... is final answer

Question - 4

Statement - 1 ............. True

Statement - 2 ............ False

Year Beginning Amount Payment Interest Paid Principal Paid Ending Balance 1 45000 12986.62 2700 10286.62 34713.38 2 34713.38 12986.62 2082.8 10903.82 23809.56 3 23809.56 12986.62 1428.57 11558.05 12251.51 4 12251.51 12986.62 735.09 12251.53 -0.02

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