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.

Solutions

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.

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.

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 1 year ago

Next > < Previous

Related Solutions

A company borrowed at 4.63%compounded semi-annually to purchase equipment, agreeing to make payments of $2,140 at...

A company borrowed at 4.63%compounded semi-annually to purchase equipment, agreeing to make payments of $2,140 at the end of every three months for 13 payments. (a) What is the equivalent cash price of the equipment? (b) How much will be owed at the end of two years? (c) How much of the principal will be repaid within the first two years? (d) How much interest is paid during the first two years? (a) The cash price of the equipment is...

Tara and Arnold have found their dream house. They will make monthly payments of $1,000 each...

Tara and Arnold have found their dream house. They will make monthly payments of $1,000 each (that is, Tara will pay $1,000 and Arnold will pay $1,000 for a total payment of $2,000 per month) for 30 years and the bank has quoted them a rate of 5%. Approximately how much are Tara and Arnold borrowing? Rosemary just received a call from a lawyer, who informed her that a distant cousin of hers left her 400 shares of preferred stock....

What is the amount of the payments that Morgan Winslow must make at the end of...

What is the amount of the payments that Morgan Winslow must make at the end of each of 10 years to accumulate a fund of $93,000 by the end of the 10th year, if the fund earns 10% interest, compounded annually? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Payment at the end of each year $ Submit Answer Part 2 John Hitchcock is 43 years old today and he...

a) What is the amount of the payments that Newman Winslow must make at the end...

a) What is the amount of the payments that Newman Winslow must make at the end of each of 9 years to accumulate a fund of $97,700 by the end of the 9th year, if the fund earns 9% interest, compounded annually? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) b) Tony Hitchcock is 40 years old today and he wishes to accumulate $490,000 by his 64 th birthday so...

You're prepared to make monthly payments of $380, beginning at the end of this month, into...

You're prepared to make monthly payments of $380, beginning at the end of this month, into an account that pays 8 percent interest compounded monthly. How many payments will you have made when your account balance reaches $22,992? Multiple Choice 56.1 45.9 51 22.93 4.4

You're prepared to make monthly payments of $390, beginning at the end of this month, into...

You're prepared to make monthly payments of $390, beginning at the end of this month, into an account that pays 5 percent interest compounded monthly. Required: How many payments will you have made when your account balance reaches $25,528? (Do not round your intermediate calculations.)

You're prepared to make monthly payments of $340, beginning at the end of this month, into...

You're prepared to make monthly payments of $340, beginning at the end of this month, into an account that pays 6 percent interest compounded monthly. How many payments will you have made when your account balance reaches $20,575?

You’re prepared to make monthly payments of $270, beginning at the end of this month, into...

You’re prepared to make monthly payments of $270, beginning at the end of this month, into an account that pays 6.8 percent interest compounded monthly. How many payments will you have made when your account balance reaches $18,000? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

An ordinary annuity selling at $14,755.18 today promises to make equal payments at the end of...

An ordinary annuity selling at $14,755.18 today promises to make equal payments at the end of each year for the next ten years (N). If the annuity’s appropriate interest rate (I) remains at 9.50% during this time, the annual annuity payment (PMT) will be $_____. You just won the lottery. Congratulations! The jackpot is $10,000,000, paid in ten equal annual payments. The first payment on the lottery jackpot will be made today. In present value terms, you really won $...

You're prepared to make monthly payments of $320, beginning atthe end of this month, into...

You're prepared to make monthly payments of $320, beginning at the end of this month, into an account that pays 9 percent interest compounded monthly. How many payments will you have made when your account balance reaches $20,260?

Subjects