If you borrow $7,000 with an interest rate of 3 percent, to be repaid in five...

If you borrow $7,000 with an interest rate of 3 percent, to be repaid in five equal yearly payments at the end of the next five years, what would be the amount of each payment? Use Exhibit 1-D. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

Amount of each paymet

Expert Solution

Amount of each payment is $1528.48

Calculation of Annual Installment

Equated annual installment =			1 Divided BY (present value of annuity factor for 5 year at 3%)

i.e.			1 / present value of annuity factor for 5 year at 3%
			1 / present value of annuity factor for 5 year at 3%

Calculation of present value of annuity factor for 5 year at 3%
Annuity factor is the total of present value factor for 5 years at 3%

Year		Present value factor @ 3%
1		0.971
2		0.943
3		0.915
4		0.888
5		0.863
Total		4.580

Equated annual installment = $ 7,000/4.580
		= $1528.48


loan repayment schedule
Year	Opening balance of loan	Interest	Total loan	Installment	Balance of loan at the end of the year

1	$ 7,000.00	$ 210.00	$ 7,210.00	$ 1,528.48	$ 5,681.52
2	$ 5,681.52	$ 170.45	$ 5,851.96	$ 1,528.48	$ 4,323.48
3	$ 4,323.48	$ 129.70	$ 4,453.19	$ 1,528.48	$ 2,924.70
4	$ 2,924.70	$ 87.74	$ 3,012.45	$ 1,528.48	$ 1,483.96
5	$ 1,483.96	$ 44.52	$ 1,528.48	$ 1,528.48	$ -

Notes
Interest is calculated by charging interest at 3% on opening balance of loan each year
Interest for the year 5 is taken as balance of loan installment and opening balance of loan of year 5 (i.e. $ 1,528.482 - 1483.963). This is done so that balance of loan at the end of 5th is Nil.

jeff jeffy answered 5 months ago

You have borrowed $33,000 to be repaid with five equal annual installments. The interest rate is...

You have borrowed $33,000 to be repaid with five equal annual installments. The interest rate is 9% per year. What is the annual payment? What is the total interest payment for year 4 of the loan? What is the total interest payment over the life of the loan?

You plan to borrow $35,000 at an 8% semiannual interest rate. It is a 3 year...

You plan to borrow $35,000 at an 8% semiannual interest rate. It is a 3 year loan that requires 6 payments to fully amortize. a) Calculate the amount of semiannual payment you would be making every period? b) Set-up an amortization schedule.

Suppose you borrow $46,000 at 8.25% annual interest to be repaid with a fully amortized plan...

Suppose you borrow $46,000 at 8.25% annual interest to be repaid with a fully amortized plan over 14 years (equal end-of-year payments). What is the total amount of principal and interest paid?

Assuming that the current interest rate is 3 percent, compute the present value of a five-year,...

Assuming that the current interest rate is 3 percent, compute the present value of a five-year, 5 percent coupon bond with a face value of $1,000. What happens when the interest rate goes to 4 percent? What happens when the interest rate goes to 2 percent? Instructions: Enter your responses rounded to the nearest penny (two decimal places). PV at an interest rate of 3% = $ PV at an interest rate of 4% = $ The present value (Click to...

You borrow a GPM of $50,000 with annual payments and 3- year term. The interest rate...

You borrow a GPM of $50,000 with annual payments and 3- year term. The interest rate is 10% and the payment factors from years 1 to 3 are as follows: 50%, 50% and 100% Questions: 1.What are the annual payments for years 1 to 3? 2.What is remaining balance at the end of year 1? 3.What are interest payment and principal payment for years 1 to 3?

3. Assume you borrow $100,000 to purchase a house and the stated interest rate is 5...

3. Assume you borrow $100,000 to purchase a house and the stated interest rate is 5 percent. The loan will be set up as an installment loan with monthly payments. What is the annual percentage rate? Show all work to be eligible for full credit. Discuss why the annual percentage rate is different than the stated interest rate.

You plan to borrow $15,000 for 3 years. The interest rate is 8% compounded semi-annually. The...

You plan to borrow $15,000 for 3 years. The interest rate is 8% compounded semi-annually. The terms require you to amortize the loan with equal payments made every period. a) Calculate the amount of payment you would be paying every period? b) Set-up an amortization schedule

Joan Messineo borrowed 42,000 at a 5% annual rate of interest to be repaid over 3...

Joan Messineo borrowed 42,000 at a 5% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal, annual, end-of-year payments. a. Calculate the annual, end-of-year loan payment. b. Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. c. Explain why the interest portion of each payment declines with the passage of time.

Joan Messineo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3...

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. (i) Calculate the annual, end-of-year loan payment. (ii) Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. (iii) Explain why the interest portion of each payment declines with the passage of time.

Joan Messineo borrowed ?$19,000 at a 9?% annual rate of interest to be repaid over 3...

Joan Messineo borrowed ?$19,000 at a 9?% annual rate of interest to be repaid over 3 years. The loan is amortized into three? equal, annual,? end-of-year payments. a.Calculate the? annual, end-of-year loan payment. b.Prepare a loan amortization schedule showing the interest and principal breadown of each of the three loan payments. c. Explain why the interest portion of each payment declines with the passage of time.

Question