2. CTL (Concrete Testing Lab) borrowed $100,000 for new equipment at 12% per yea

Question

2. CTL (Concrete Testing Lab) borrowed $100,000 for new equipment at 12% per year, compounded quarterly. It is to be paid back over three years in equal quarterly payments. a. b. c. d. e. How much are the quarterly payments? How much interest is in the 7th payment? How much principal is in the 7th payment? What is the remaining balance after the 7th payment? Two years after borrowing the money, you decide to pay off the loan. You have not yet made the payment due at that time. What is the payoff amount for the loan?

Explanation / Answer

PV = $ 100000, i = 12%

quarterly interest rate = 12%/4 = 3% and n = 3 years or 12 quarters

a)

Quarterly payment = y

y/(1 + 3%) + ..... + y/(1 + 3%)12 = 100000

y = $ 10046.21

b), c) and d)

interest component = principal remaining x 3%

principal component = quarterly payment - interest component

principal remaining (n th period) = principal remaining (n-1) - principal component

interest paid in 7th payment = $ 1632.67

principal paid in 7th payment = $ 8413.54

remaining balance after 7th payment = $ 46008.69

e)

Two years = 8 quarters

Payoff amount = remaining balance after 7th payment x (1 + 3%) = $ 47388.95

Payment Number Quarterly payment Interest component Principal component Principal remaining 1 10046.21 3000.00 7046.21 92953.79 2 10046.21 2788.61 7257.59 85696.20 3 10046.21 2570.89 7475.32 78220.87 4 10046.21 2346.63 7699.58 70521.29 5 10046.21 2115.64 7930.57 62590.72 6 10046.21 1877.72 8168.49 54422.23 7 10046.21 1632.67 8413.54 46008.69 8 10046.21 1380.26 8665.95 37342.75 9 10046.21 1120.28 8925.93 28416.82 10 10046.21 852.50 9193.70 19223.12 11 10046.21 576.69 9469.52 9753.60 12 10046.21 292.61 9753.60 0.00

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.