LOAN AMORTIZATION Jan sold her house on December 31 and took nominal interest ra

Question

LOAN AMORTIZATION Jan sold her house on December 31 and took nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan IRS Form 1040 the amount of interest that was induded in the two payments she received during the year. a. What is the dollar amount of each payment Jan receives? Round your answer to the nearest cent. a $25,000 mortgage as part of the payment. The 10-year mortgage has a 12% must report on Schedule B of her b. How much interest was included in the first payment? Round your answer to the nearest cent. How much repayment of principal was included? Round your answer to the nearest cent. How do these values change for the second payment? -Select-V L. The portion of the payment that is applied to interest dedines, while the portion of the payment that is applied to principal increases. II. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal II. The portion of the payment that is applied to interest and the portion of the payment that is applied to principal remains the IV. The portion of the payment that is applied to interest dedines, while the portion of the payment that is applied to principal also V. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal also C. How much interest must Jan report on Schedule B for the first year? Round your answer to the nearest cent decreases same throughout the life of the loan. declines. increases. Will her interest income be the same next year? -Select- d. If the payments are constant, why does the amount of interest income change over time? L. As the loan is amortized (paid off), the beginning balance, hence the interest charge, increases and the repayment of principal IL. s the loan is amortized (paid of), the beginning balance, hence the interest charge, dedines and the repayment of principal I. As the loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the repayment of principal -Select- increases. increases declines. declines. the same IV. As the loan is amortized (paid off), the beginning balance, hence the interest charge, increases and the repayment of principal V. As the loan is amortized (paid off), the beginning balance decdlines, but the interest charge and the repayment of principal remain

Explanation / Answer

As per rules I am answering the first 4 sub parts of the question

A:PV of the loan = $25000

N= 10*2 = 20

Rate = 12%/2 = 6%

Let the semiannual payments be A

PV= A*(1-1/(1+r)^n)/r

25000 = A*(1-1/1.06^20)/0.06

25000= A * 11.46992

A= 2179.61

B: Interest in first payment = 6%*25000 =$1500

C: Principal in first payment = Semiannual payment – Interest

= 2179.61- 1500

= $679.61

D: I

(Since principal reduces after first payment, amount of interest will reduce. But the semiannual payment remains the same, so the proportion of principal repayment increases)

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