Question

In: Finance

showing the student's calculations (using the variables from a financial calculator) and answer for each of...

showing the student's calculations (using the variables from a financial calculator) and answer for each of the 3 parts required in the problem. Make sure answers are clearly identified.

Loan amortization schedule Joan messineo borrowed 15,000 at 14% annual rate of interest to be repaid over 3 years. The loan is amortizd into three equal, annual, end of year payments.

a. calculate the annual end of year loan payment

b. prepare a loan amortization schedule showing the interest and principal break down of each of the three laon payments.

c. explain why the interest portion of each payment declines with the passage of time.

B-1.) Based on the loan amortization schedule, what conclusion can be made about the principal repayments and interest payments from this example?

c-1.) The loan amortization schedule in this problem is to satisfy a 3 year loan with annual payments. If you are considering selecting a mortgage of either a 15 year mortgage or a 30 year mortgage, what should be taken into consideration to help you choose between either loan maturities? What adjustments would have to be made to this problem's set up to accommodate a typical mortgage example?

Solutions

Expert Solution

PVIFA(14%, 3) = 2.321632

loan outstanding = 15000

installment amt. = 15000/2.431632

= 6460.97 0r 6461

(a) annual and year loan payment = 6461

(b) calculation of loan amortization schedule -

Year Loan outstanding installment interest principal closing amt.
1 15000.0 6461.0 2100 4361.0 10639.0
2 10639.0 6461.0 1489.464 4971.5 5667.5
3 5667.5 6461.0 793.4527 5667.5 0.0

(C) as we can see in the above table that at the end of year, loan outstanding amt. has been reduced by the principal amt.that's why the interest portion of each payment declines with the passage of time.

(B-1) Conclusion - interest amt . is going down on every year or principal amt. is reducing in increasing manner avery year. means interest amt, will be greater by the increase in the no. of years.

(C-1) PVIFA (14%, 15) = 6.142168

= 15000/6.142168

= 2442.13

Year Loan outstanding installment interest principal closing amt.
1 15000.0 2442.1 2100 342.1 14657.9
2 14657.9 2442.1 2052.101 390.0 14267.8
3 14267.8 2442.1 1997.497 444.6 13823.2
4 13823.2 2442.1 1935.247 506.9 13316.3
5 13316.3 2442.1 1864.283 577.9 12738.5
6 12738.5 2442.1 1783.384 658.8 12079.7
7 12079.7 2442.1 1691.159 751.0 11328.7
8 11328.7 2442.1 1586.022 856.1 10472.6
9 10472.6 2442.1 1466.166 976.0 9496.6
10 9496.6 2442.1 1329.531 1112.6 8384.0
11 8384.0 2442.1 1173.766 1268.4 7115.7
12 7115.7 2442.1 996.1948 1445.9 5669.7
13 5669.7 2442.1 793.7633 1648.4 4021.4
14 4021.4 2442.1 562.9913 1879.1 2142.2
15 2142.2 2442.1 299.9112 2142.2 0.0
Total 21632.02 15000.0

now loan amortization schedule = 30 years

PVIFA(14%,30) = 7.002664

installment = 15000/7.002664

= 2142.042

loan amortization schule -

Year Loan outstanding installment interest principal closing amt.
1 15000.0 2142.0 2100 42.0 14958.0
2 14958.0 2142.0 2094.114 47.9 14910.0
3 14910.0 2142.0 2087.404 54.6 14855.4
4 14855.4 2142.0 2079.755 62.3 14793.1
5 14793.1 2142.0 2071.035 71.0 14722.1
6 14722.1 2142.0 2061.094 80.9 14641.2
7 14641.2 2142.0 2049.761 92.3 14548.9
8 14548.9 2142.0 2036.842 105.2 14443.7
9 14443.7 2142.0 2022.114 119.9 14323.7
10 14323.7 2142.0 2005.324 136.7 14187.0
11 14187.0 2142.0 1986.183 155.9 14031.2
12 14031.2 2142.0 1964.363 177.7 13853.5
13 13853.5 2142.0 1939.488 202.6 13650.9
14 13650.9 2142.0 1911.13 230.9 13420.0
15 13420.0 2142.0 1878.803 263.2 13156.8
16 13156.8 2142.0 1841.949 300.1 12856.7
17 12856.7 2142.0 1799.936 342.1 12514.6
18 12514.6 2142.0 1752.042 390.0 12124.6
19 12124.6 2142.0 1697.442 444.6 11680.0
20 11680.0 2142.0 1635.198 506.8 11173.1
21 11173.1 2142.0 1564.239 577.8 10595.3
22 10595.3 2142.0 1483.347 658.7 9936.6
23 9936.6 2142.0 1391.13 750.9 9185.7
24 9185.7 2142.0 1286.002 856.0 8329.7
25 8329.7 2142.0 1166.156 975.9 7353.8
26 7353.8 2142.0 1029.532 1112.5 6241.3
27 6241.3 2142.0 873.7811 1268.3 4973.0
28 4973.0 2142.0 696.2246 1445.8 3527.2
29 3527.2 2142.0 493.8102 1648.2 1879.0
30 1879.0 2142.0 263.0578 1879.0 0.0
Total 49261.26 15000

inflation factor would help me to choose between either loan maturities.

inflation adjustment would have to be made to this problem's set up to accomodate a typical mortgage example.

Please comment in case of any clarification required.

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

show the student's calculator set-up (using the variables from a financial calculator) and answers for each...
show the student's calculator set-up (using the variables from a financial calculator) and answers for each of the 3 parts in the problem. For part c, give an exact percentage answer and not an approximate answer. Clearly identify your answers to each part. Assume that you just won the state lottery. your prize can be taken either in the form of 40000 at the end of each of the next 25 years (that is 1,000,000 over 25 years) or as...
please use HP 10bll financial calculator and type the steps to using the calculator no excell...
please use HP 10bll financial calculator and type the steps to using the calculator no excell please Your firm has a loan on a piece of equipment. the loan was secured on January 1 and it is now December 31. you need to conpute the ineteres pain this year on his loan for rax ourposes. the loan was 80,000, it was a 10 year loan at 8% with monthly oayments. if you have made the first eleven payments, how much...
There are three numerical questions, you can answer them using either mathematical formula or financial calculator....
There are three numerical questions, you can answer them using either mathematical formula or financial calculator. No matter what method you use, you need to show the calculation steps (for math formula) or function buttons that you click. 1.a.) In the year-end of 2018, Mike Foods Inc. just spent $19.5 million to pay out the dividends and it disclosed the retained earnings of $279.5 million. In the year-end of 2017 the company had retained earnings of $221.8 million. Based on...
Find the following values using the equations and then a financial calculator.
Find the following values using the equations and then a financial calculator. Compounding/discounting occurs annually. Do not round intermediate calculations. Round your answers to the nearest cent.a. An initial $400 compounded for 1 year at 7%.b. An initial $400 compounded for 2 years at 7%c. The present value of $400 due in 1 year at a discount rate of 7%.d. the present value of $400 due in 2 years at a discount rate of 7%
Find the following values, using the equations, and then work the problems using a financial calculator...
Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain...
Find the following values, using the equations, and then work the problems using a financial calculator...
Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain...
Find the following values, using the equations, and then work the problems using a financial calculator...
Find the following values, using the equations, and then work the problems using a financial calculator to check your answers. Disregard rounding differences. (Hint: If you are using a financial calculator, you can enter the known values and then press the appropriate key to find the unknown variable. Then, without clearing the TVM register, you can "override" the variable that changes by simply entering a new value for it and then pressing the key for the unknown variable to obtain...
Q8. Using the Student's distribution table, answer the following questions: a) In order to examine whether...
Q8. Using the Student's distribution table, answer the following questions: a) In order to examine whether the socio-economic levels of families have an impact on the development of children, the height of the boys of the same age from the families with high and low socioeconomic level was measured and the following findings were obtained. High Low Ẋ S Ẋ S Height (cm) 107.4 6 104.2 5 Number of children 30 40 Since it is known that it fits the...
Use a financial calculator or an Excel spreadsheet to estimate the IRR for each of the...
Use a financial calculator or an Excel spreadsheet to estimate the IRR for each of the following investments. Investment A B Initial Investment $                8,500.00 $      9,500.00 End of Year Income 1 $                2,500.00 $      2,000.00 2 $                2,500.00 $      2,500.00 3 $                2,500.00 $      3,000.00 4 $                2,500.00 $      3,500.00 5 $                2,500.00 $      4,000.00
Use a financial calculator or an Excel spreadsheet to estimate the IRR for each of the...
Use a financial calculator or an Excel spreadsheet to estimate the IRR for each of the following​ investments: The Yield for Investment A: The Yield for Investment B: A B Initial Investment 6,400 9,535 Year 1 $1,822.65 $2,200 Year 2 $1,822.65 $2,500 Year 3 $1,822.65 $3,100 Year 4 $1,822.65 $3,600 Year 5 $1,822.65 $4,100
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT