Question

PART A.

Jan sold her house on December 31 and took a $35,000 mortgage as part of the payment. The 10-year mortgage has a 11% 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.

b. How much interest was included in the first payment? Round your answer to the nearest cent.

How much repayment of principal was included? Round your answer to the nearest cent.

PART B. How do these values change for the second payment? (CHOOSE ONE)

I. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal increases.

II. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal decreases.

III. The portion of the payment that is applied to interest and the portion of the payment that is applied to principal remains the same throughout the life of the loan.

IV. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal also declines.

V. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal also increases. c. How much interest must Jan report on Schedule B for the first year? Round your answer to the nearest cent.

PART C. Will her interest income be the same next year?

Answer 1

Loan Principle Amount	35,000.00
Annual Interest Rate	11.00%
Loan Period (in six months)	20.00
Original Repayment Amount	2,928.78

Month	Repayment Number	Opening Balance	Loan Repayment	Interest Charged	Capital Repaid	Closing Balance	% Capital Outstanding
June	1	$35,000.00	$2,928.78	$1,925.00	$1,003.78	$33,996.22	97.13%
JAN	2	$33,996.22	$2,928.78	$1,869.79	$1,058.98	$32,937.24	94.11%
	3	$32,937.24	$2,928.78	$1,811.55	$1,117.23	$31,820.01	90.91%
	4	$31,820.01	$2,928.78	$1,750.10	$1,178.68	$30,641.33	87.55%
	5	$30,641.33	$2,928.78	$1,685.27	$1,243.50	$29,397.83	83.99%
	6	$29,397.83	$2,928.78	$1,616.88	$1,311.90	$28,085.94	80.25%
	7	$28,085.94	$2,928.78	$1,544.73	$1,384.05	$26,701.89	76.29%
	8	$26,701.89	$2,928.78	$1,468.60	$1,460.17	$25,241.71	72.12%
	9	$25,241.71	$2,928.78	$1,388.29	$1,540.48	$23,701.23	67.72%
	10	$23,701.23	$2,928.78	$1,303.57	$1,625.21	$22,076.02	63.07%
	11	$22,076.02	$2,928.78	$1,214.18	$1,714.60	$20,361.43	58.18%
	12	$20,361.43	$2,928.78	$1,119.88	$1,808.90	$18,552.53	53.01%
	13	$18,552.53	$2,928.78	$1,020.39	$1,908.39	$16,644.14	47.55%
	14	$16,644.14	$2,928.78	$915.43	$2,013.35	$14,630.79	41.80%
	15	$14,630.79	$2,928.78	$804.69	$2,124.08	$12,506.71	35.73%
	16	$12,506.71	$2,928.78	$687.87	$2,240.91	$10,265.80	29.33%
	17	$10,265.80	$2,928.78	$564.62	$2,364.16	$7,901.64	22.58%
	18	$7,901.64	$2,928.78	$434.59	$2,494.19	$5,407.46	15.45%
	19	$5,407.46	$2,928.78	$297.41	$2,631.37	$2,776.09	7.93%
	20	$2,776.09	$2,928.78	$152.69	$2,776.09	$0.00	0

Interest Charged = June + JAn = $3794.78

Interest payment on JAN = $1925

Answer b)

Repayment Number	Opening Balance	Loan Repayment	Interest Charged	Capital Repaid	Closing Balance	% Capital Outstanding
1	$35,000.00	$2,928.78	$1,925.00	$1,003.78	$33,996.22	97.13%

Answer PART B.)

I. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal increases.

Answer )c. How much interest must Jan report on Schedule B for the first year?

Interest of JUne only : $1925.00

Answer PART C) her interest income will be different next year.