Question

In: Finance

Appalachian Bank offers you a $135,000, 9-year term loan at 7.5 percent annual interest. What will...

Appalachian Bank offers you a $135,000, 9-year term loan at 7.5 percent annual interest. What will your annual loan payment be? Semi-annual compounding.

Solutions

Expert Solution

We need to calculate the annual loan payment on the loan. We can do this using the PMT formula on excel as shown below.

Loan Amount = PV -1,35,000
Annualized Rate 7.50%
Tenor 9 Years
Future Value 0
Annuity Type Ordinary Annuity

Howver, we need to note that, compounding is being done on a semi-annual basis (6 months). Hence, we need to adjust the number of periods and the rate used to calculate the payment.

Rate to be used = r = Annual Rate / (12 / compounding in months)

Rate to be used = r = 7.5% / 2 = 3.75%

Number of periods = Years x (12 / compounding in months)

Number of periods = 9 x 2 = 18

Now, the PMT formula should be implemented as given below:

Adjusted Rate 3.75%
Adjusted No. of Periods 18
Semi Annual Payment PMT(3.75%,18,-135000,0,0)

Semi Annual Payment = $ 10,448.54

Annual Payment = Semi Annual Payment x 2

Annual Payment = $ 20,897.09 ......Answer


Related Solutions

FIN220 Bank offers you a 5-year loan for 500,000 Baht at an annual interest rate of...
FIN220 Bank offers you a 5-year loan for 500,000 Baht at an annual interest rate of 5 percent, compounded monthly. What will your monthly loan payment be? 115,487.40 100,000.00 4,166.67 9,435.62
Your bank offers you a 10-year loan, with annual payments of $10,000 starting 1 year from...
Your bank offers you a 10-year loan, with annual payments of $10,000 starting 1 year from today. If the annual interest rate is 6.7%, compounded annually, what is the principal amount of the loan?
Adelman Company received a $100,000, one year, 9 percent bank loan on October 31, 2016. Interest...
Adelman Company received a $100,000, one year, 9 percent bank loan on October 31, 2016. Interest is payable at the end of the loan term. Adelman’s adjusting entry at the end of their fiscal year on March 31, 2017 is: A. A debit to Interest Receivable of $4,500 and a credit to Interest Payable of $4,500 B. A debit to Interest Expense of $1,500 and a credit to Interest Payable of $1,500 C. A debit to Interest Expense of $3,750...
You have just arranged a six-year bank loan for $150,000 at an interest rate of 9%...
You have just arranged a six-year bank loan for $150,000 at an interest rate of 9% p.a. with interest compounded quarterly. The loan will be repaid in equal quarterly installments and the first payment will be due one quarter from today. Assuming end-of-the-period cash flows, the principal amount repaid to the bank at the end of the first quarter will be closest to: Group of answer choices $3,375. $4,890. $4,782. $3,267.
You are currently maintaining a conventional 30-year mortgage loan with your bank and the annual interest...
You are currently maintaining a conventional 30-year mortgage loan with your bank and the annual interest rate is 8%. Your bank manager now offers you a 30-year adjustable rate mortgage (ARM) at 2% but the rate will be adjusted once each year. Evaluate your current mortgage and the new option in terms of the following: Risk that the monthly payment will change over the next 30 years, and, interest rate risk. Explain your understanding on the risk involved in this...
One bank pays 5.5 percent annual interest, while a second bank pays 4.5 percent annual interest.
One bank pays 5.5 percent annual interest, while a second bank pays 4.5 percent annual interest. Determine how much longer it will take to accumulate at least $50 000 in the second bank account if you deposit $1000 initially and $1000 at the end of each year.
A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is...
A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is compounded semi-annually? Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is compounded quarterly? Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6...
A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is...
A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is compounded daily? Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434)) A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is compounded continuously? Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6...
A bank offers 6.00% on savings accounts. What is the effective annual rate if interest is...
A bank offers 6.00% on savings accounts. What is the effective annual rate if interest is compounded daily? A bank offers 5.00% on savings accounts. What is the effective annual rate if interest is compounded continuously?
A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is...
A bank offers 9.00% on savings accounts. What is the effective annual rate if interest is compounded monthly? Answer format: Percentage Round to: 4 decimal places (Example: 9.2434%, % sign required. Will accept decimal format rounded to 6 decimal places (ex: 0.092434))
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT