2. CTL (Concrete Testing Lab) borrowed $100,000 for new equipment at 12% per yea
ID: 1140781 • Letter: 2
Question
2. CTL (Concrete Testing Lab) borrowed $100,000 for new equipment at 12% per year, compounded quarterly. It is to be paid back over three years in equal quarterly payments.
How much are the quarterly payments?
How much interest is in the 7th payment?
How much principal is in the 7th payment?
What is the remaining balance after the 7th payment?
Two years after borrowing the money, you decide to pay off the loan. You have not yet made the payment due at that time. What is the payoff amount for the loan?
Explanation / Answer
(a) Quarterly interest rate = 12%/4 = 3% and number of quarters = 4 x 3 = 12
Quarterly payment ($) = Loan amount / P/A(3%, 12) = 100,000 / 9.9540** = 10,046.21
(b) For next 3 parts we draw the loan amortization schedule for first 8 quarters as follows.
Working notes:
(i) Interest payment in quarter N = Beginning balance in quarter N x 0.03
(ii) Principal payment in quarter N = $10,046.21 - Interest payment in quarter N
(iii) Beginning balance in quarter N = Ending balance in quarter (N - 1)
(b) Therefore,
Interest in 7th payment (quarter) = $1,191.68
(c) Principal in 7th payment (quarter) = $8,854.53
(d) Remaining balance after 7th payment (quarter) = $29,676.53
NOTE: As per Answering Policy, 1st 4 parts have been answered.
Quarter Beginning balance ($) Monthly Payment ($) Interest Payment ($) Principal Payment ($) Ending Balance ($) 1 1,00,000.00 10,046.21 3,000.00 7,046.21 89,953.79 2 89,953.79 10,046.21 2,698.61 7,347.60 79,907.58 3 79,907.58 10,046.21 2,397.23 7,648.98 69,861.37 4 69,861.37 10,046.21 2,095.84 7,950.37 59,815.16 5 59,815.16 10,046.21 1,794.45 8,251.76 49,768.95 6 49,768.95 10,046.21 1,493.07 8,553.14 39,722.74 7 39,722.74 10,046.21 1,191.68 8,854.53 29,676.53 8 29,676.53 10,046.21 890.30 9,155.91 19,630.32 TOTAL 30,138.63 8,095.84 22,042.79Related Questions
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