Question

In: Finance

1. Sheridan Service has a line of credit loan with the bank. The initial loan balance...

1. Sheridan Service has a line of credit loan with the bank. The initial loan balance was $8000.00. Payments of $3000.00 and $4000.00 were made after three months and eight months respectively. At the end of one year, Sheridan Service borrowed an additional $4500.00. Seven months later, the line of credit loan was converted into a collateral mortgage loan. What was the amount of the mortgage loan if the line of credit interest was 7% compounded monthly?

2. A variable rate demand loan showed an initial balance of $8000.00, payments of $3500.00 after six months, $3500.00 after 21 months, and a final payment after six years. Interest was 7% compounded quarterly for the first 21 months and 7.2% compounded monthly for the remaining time. What was the size of the final payment?

Expert Solution

Answer is as follows:

Initial loan baalance is $8000.

Rate = 7% per annum

Rate = 7% / 12

= 0.5833%

After 3 months loan amount will be-

Amount after 3 months = loan *(1 + rate)^3

= 8000 *( 1 + 0.005833 )^3

= 8000 *(1.005833)^3

= 8000 * 1.0176

= 8140.81825

Payment after 3 months = $3000

Net balance = Amount after 3 months - payment

= 8140.81825 - 3000

= 5140.81825

Not this net balance will be consier as principal amount for next loan calculation:

Amount after 8 months = Principal * (1 + rate)^5

= 5140.81825 * ( 1 + 0.005833 )^5

= 5140.81825 * (1.005833)^5

= 5140.81825 * 1.029508

= 5292.51832

Payment after 8 months = 4000

Net balance = amount after 8 months - Payment after 8 months

= 5292.51832 - 4000

= 1292.51832

Now, calculate the amount after 12 moths as follows:

Amount after 12 months = Principal * (1 + rate)^4

= 1292.51832 * ( 1 + 0.005833 )^4

=1292.51832 * ( 1.005833 )^4

= 1292.51832 * 1.023538

= 1322.94199

Ammount borrowed after 12 months is 4500.

Net balance = Amount after 12 months + Amount borrowed

= 1322.94199 + 4500.

= 5822.94199

Now. this net balance will be principal amount.

Amount after 7 months = Principal * (1 + rate)^7

= 5822.94199 * ( 1 + 0.005833 )^7

= 5822.94199 * ( 1 .005833 )^7

= 5822.94199 * 1.0415549

= 6064.9138

Therefore, amount of mortgage loan is $6064.9138.

Please post another question separately .Thank you,

jeff jeffy answered 2 years ago

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