Math 400



Math 400 - Theory of Interest NAME:__________________________________

Homework #17

1. For each of the conditions stated below, construct an amortization schedule for repaying a loan of $1000 in quarterly payments of $200, if the interest is 12% compounded monthly. (You may do these with an Excel spreadsheet or with a calculator.)

a) The final payment is a drop payment.

b) The final payment is a balloon payment.

2. For each of the conditions stated below, construct an amortization schedule for repaying a loan of $1000 in monthly payments of $100, if the interest is 12% compounded quarterly. (You may do these with an Excel spreadsheet or with a calculator.)

a) The final payment is a drop payment.

b) The final payment is a balloon payment.

3. Person X wants to borrow $10,000 for 10 years at 9% compounded annually, repaying in 10 equal annual payments. Person Y can borrow $10,000 at 10% annual interest, paying only the interest each year and repaying the entire principal at the end of the tenth year. Y plans to borrow the $10,000, lend this $10,000 to X, and to use part of X’s annual payment to pay the annual 10% interest. Y also plans to use the other part of X’s annual payment to buy stock in a company. Find the effective annual yield Y will have to receive at the end of 10 years from the accumulated stock in order to turn a profit of $1000.

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