Question

In: Finance

In December Beth bought a boat for $100,000 & payed $16,000 down & agreed to pay...

In December Beth bought a boat for $100,000 & payed $16,000 down & agreed to pay the balance In 5 equal annual installments that include both the principal & 9% interest on the declining balance. How big will the annual payments be?

Beth bought the yacht for $100,000 & paid $16,000 down, how much doe she need to borrow for her purchase of the yacht?

$__ (round to the nearest dollar)

Expert Solution

1. Annual payments be := $21595/-

Working Note

This sum can be calculated using time value of money concept using following formula.

Equated annual installment = Loan amount/ PVIFA(r ,n)

= 84000 / PVIFA(9%,5)

= 84000 / 3.890

= $21595/-

Note : PVIFA has been seen from Present value of annuity table using rate 9% and n=5 used for calculating time value of money.

Loan amount = Cost of Boat -Down Payment

= $100000-$16000 =$84000

2. beth needs to borrow following amount based below mention on loan Amortisation schedule:

Year	Beginning Amount	Annual Installment	Interest	Principal Repaid	Remaining Balance
1	84000	21595	7560	14035	69965
2	69965	21595	6297	15298	54667
3	54667	21595	4920	16675	37992
4	37992	21595	3419	18176	19816
5	19816	21595	1783	19812	5
Total			23980	83995

Amount needs to borrow = &84000+$23980 =$107980

Note: Most of financial institutions allow borrowings upto 85% of loan amount depends on institutes loan policy they may also allow to borrow processing fees too.

jeff jeffy answered 6 months ago

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