Solutions Guide: Please reword the answers to essay type ...
Solutions Guide: Please reword the answers to essay type parts so as to guarantee that your answer is an original. Do not submit as is
|P4–46 |Loan amortization schedule |
| | |
| |Joan Messineo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into |
| |three equal, annual, end-of-year payments. |
| | |
| |1. Calculate the annual, end-of-year loan payment. |
| |2. Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments.|
| |3. Explain why the interest portion of each payment declines with the passage of time. |
(a) PMT ’ $15,000 ( (PVIFA14%,3)
PMT ’ $15,000 ( 2.322
PMT ’ $6,459.95
Calculator solution: $6,460.97
(b)
|End of |Loan |Beginning of |Payments |End of Year |
|Year |Payment |Year Principal | |Principal |
| | | |Interest |Principal | |
|1 |$6,459.95 |$15,000.00 |$2,100.00 |$4,359.95 |$10,640.05 |
|2 |$6,459.95 |10,640.05 |1,489.61 |4,970.34 |5,669.71 |
|3 |$6,459.95 |5,669.71 |793.76 |5,666.19 |0 |
(The difference in the last year’s beginning and ending principal is due to rounding.)
(c) Through annual end-of-the-year payments, the principal balance of the loan is declining, causing less interest to be accrued on the balance.
|P4–48 |Monthly loan payments |
| | |
| |Tim Smith is shopping for a used car. He has found one priced at $4,500. The dealer has told Tim that if he can come up |
| |with a down payment of $500, the dealer will finance the balance of the price at a 12% annual rate over 2 years (24 |
| |months). |
| | |
| |Assuming that Tim accepts the dealer’s offer, what will his monthly (end-of-month) payment amount be? |
| |Use a financial calculator or Equation 4.15a (found in footnote 9) to help you figure out what Tim’s monthly payment |
| |would be if the dealer were willing to finance the balance of the car price at a 9% annual rate. |
(a) PMT ’ $4,000 ( (PVIFA1%,24)
PMT ’ $4,000 ( (21.243)
PMT ’ $188.28
Calculator solution: $188.29
(b) PMT ’ $4,000 ( (PVIFA0.75%,24)
PMT ’ $4,000 ( (21.889)
PMT ’ $182.74
Calculator solution: $182.74
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