Question

In: Finance

If your uncle borrows $56,000 from the bank at 10 percent interest over the eight-year life...

If your uncle borrows $56,000 from the bank at 10 percent interest over the eight-year life of the loan. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.

a. What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

b. How much of his first payment will be applied to interest? To principal? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)

interest

principal

c. How much of his second payment will be applied to each?

interest

principal

Expert Solution

(a)

Annual Payment = $ 10,496.86

Present Value = Annual Payment * PVAF(10%, 8 years)

$ 56,000 = Annual Payment * PVAF(10%, 8 years)

Annual Payment = $ 56,000 / PVAF(10%, 8 years)

Annual Payment = $ 56,000 / 5.335

Annual Payment = $ 10,496.86

(b) & (c)

	Towads Principal	Interest
(b)	10496.86	5600.00
(c)	10496.86	5110.31

Repayment Schedule
Year	Opening Blance	Annual Payment	Towards Interest	Towards Principal	Closing Balance
	A	B	*C = A10%**	D = B - C	E = A - D
1	$ 56,000.00	$ 10,496.86	$ 5,600.00	$ 4,896.86	$ 51,103.14
2	$ 51,103.14	$ 10,496.86	$ 5,110.31	$ 5,386.55	$ 45,716.58
3	$ 45,716.58	$ 10,496.86	$ 4,571.66	$ 5,925.21	$ 39,791.38
4	$ 39,791.38	$ 10,496.86	$ 3,979.14	$ 6,517.73	$ 33,273.65
5	$ 33,273.65	$ 10,496.86	$ 3,327.36	$ 7,169.50	$ 26,104.15
6	$ 26,104.15	$ 10,496.86	$ 2,610.41	$ 7,886.45	$ 18,217.70
7	$ 18,217.70	$ 10,496.86	$ 1,821.77	$ 8,675.10	$ 9,542.60
8	$ 9,542.60	$ 10,496.86	$ 954.26	$ 9,542.60	$ 0.00

jeff jeffy answered 1 year ago

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