In: Finance
5.22
Jan sold her house on December 31 and took a $25,000 mortgage as part of the payment. The 10-year mortgage has an 8% nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan must report on Schedule B of her IRS Form 1040 the amount of interest that was included in the two payments she received during the year. a. What is the dollar amount of each payment Jan receives? Round your answer to the nearest cent. $ 1839.54 b. How much interest was included in the first payment? Round your answer to the nearest cent. $ 1000 How much repayment of principal was included? Do not round intermediate calculations. Round your answer to the nearest cent. $ 839.54 How do these values change for the second payment?
I - **DID FIRST HALF PLEASE CHECK AND ANSWER REST, NOT SURE IF IM DOING IT RIGHT* c. How much interest must Jan report on Schedule B for the first year? Do not round intermediate calculations. Round your answer to the nearest cent. $ Will her interest income be the same next year? d. If the payments are constant, why does the amount of interest income change over time?
-Select-IIIIIIIVV |
1: Interest income in Year 1 = 1966.42
Loan Amount |
Interest Rate |
Term in Years |
Semi annual payment |
||
$25,000.00 |
8% |
10 |
$1,839.54 |
||
Period |
StartingBalance |
Interest |
Principal |
EndingBalance |
TotalInterest |
1 |
$25,000.00 |
$1,000.00 |
$839.54 |
$24,160.46 |
$1,000.00 |
2 |
$24,160.46 |
$966.42 |
$873.13 |
$23,287.33 |
$1,966.42 |
2: Her interest income will decline in each successive year.
3: II: As the loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the repayment of principal increases.
(As the principal reduces, the interest declines and principal repayment component increases)
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