NAME ______________________________________ September 22, 2014 A loan of $2,000
ID: 1094515 • Letter: N
Question
NAME ______________________________________ September 22, 2014
A loan of $2,000 is taken out at in interest rate of 10% per year for eight years. Total yearly interest payment is paid each year at the end. Half of the loan is repaid as a lump sum at the end of four years and the other half will be repaid in one lump sum amount at the end of eight years. Complete the table below.
year
AMOUNT OWED AT BEGINNING OF YEAR
INTEREST ACCRUED
AMOUNT OWED AT END OF YEAR
PRINCIPAL PAYMENT
TOTAL END OF YEAR PAYMENT
$2000
0
2
0
3
4
5
0
6
0
7
0
8
3. How much interest TOTAL will be paid over the eight year period?
4. You invest $25,000 in a stock based mutual fund. This fund should earn (on average) 10% per year over a long period of time. How much should your investment be worth in 25 years?
5. What is the present equivalent of $18,000 to be received in 15 years when the interest rate is 7% per year?
year
AMOUNT OWED AT BEGINNING OF YEAR
INTEREST ACCRUED
AMOUNT OWED AT END OF YEAR
PRINCIPAL PAYMENT
TOTAL END OF YEAR PAYMENT
$2000
0
2
0
3
04
5
0
6
0
7
0
8
Explanation / Answer
0
In order to explain how i created this table, interest accrued would be just 10% of the amount owed at the beginning of the year, amount owed at the end of the year would be amount owed at the beginning of the year + interest accrued principal repayment will be 0 for all the years except years 4 and 8 and last column total end of the year payment would be amount owed at the end of the year - principal repayment. Complete the table in a spreadsheet like this and the only two remaining entries should be your principal repayment for years 4 and 8. For this we need the same number in both cells so use hit and trial till you get total amount at the end of the year as 0. The principal repayment comes close to 1740 at the end of years 4 and 8
1) The table answers part one of the question
3) 1480 is the interest paid over eight years. Just add the entries of column 2
4) 25000* (1+0.1)^25 = 270867
5) 18000/(1+0.07)^15 = 6524
year AMOUNT OWED AT BEGINNING OF YEAR INTEREST ACCRUED AMOUNT OWED AT END OF YEAR PRINCIPAL PAYMENT TOTAL END OF YEAR PAYMENT 1 2000 200 2200 0 2200 2 2200 220 2420 0 2420 3 2420 242 2662 0 2662 4 2662 266 2928 1740 1188 5 1188 119 1307 0 1307 6 1307 131 1438 0 1438 7 1438 144 1581 0 1581 8 1581 158 1740 17400
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