Question

In: Finance

Dream weaver financed an expansion project by agreeing to make payments of $7000 at the end...

Dream weaver financed an expansion project by agreeing to make payments of $7000 at the end of every 3 months for the next 7 years. At the time of purchase,money was worth 6.8% compounded annually.
1. Using prospective method, calculate the equivalent loan values.
2. Compute the interest paid and principal prepaid by 26th payment.

Expert Solution

Compute the quarterly interest rate, using the equation as shown below:

Quarterly rate = Annual rate/ 4

= 6.8%/ 4

= 1.7%

Hence, the quarterly interest rate is 1.70%.

Compute the present value annuity factor (PVIFA), using the equation as shown below:

Hence, the present value annuity factor is 22.1321197996.

1.

Compute the equivalent loan value, using the equation as shown below:

Loan value = Quarterly payments*PVIFA

= $7,000*22.1321197996

= $154,924.838597

Hence, the equivalent loan value is $154,924.838597.

2.

Compute the interest and principal paid in 26^th payment, using MS-excel as shown below:

The result of the above excel table is as follows:

Hence, the interest and principal paid in 26^th payment is $345.20 and $5,554.80 respectively.

jeff jeffy answered 2 years ago

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