$100,000 is borrowed at 6% compounding annual interest, with the loan to be repa

Question

$100,000 is borrowed at 6% compounding annual interest, with the loan to be repaid with 10 equal annual payments.

a) if the first payment is made one year after receiving the $100,000, how much of the third payment will be an interest payment?

b) If the first paymetn is made four years after receving the $100,000, how much of the first payment will be an interest payment

c) If the first payment is made four years after receiving the $100,000, how much of the last payment will be an interest payment?

Explanation / Answer

a)

Value after 1 year=100000*1.06=106000

EMI=PMT (0.06,10,-106000,0)= 14402.0

As per the below table, the third interest payment =$5366.0

b)

Value After 4 year=100000*(1.06^4)= 126247.696

EMI=PMT (0.06,10,- 126247.696,0)= 17153.0

As per the below table, the first interest payment =$ 7574.9

c)

As per the table in part b the last interest payment will = $970.9

Year 1 2 3 4 5 6 7 8 9 10 Beginning balance 106000.0 97958.0 89433.5 80397.5 70819.3 60666.5 49904.5 38496.7 26404.5 13586.8 Annual payment 14402.0 14402.0 14402.0 14402.0 14402.0 14402.0 14402.0 14402.0 14402.0 14402.0 Interest=0.06*Beginning balance 6360.0 5877.5 5366.0 4823.8 4249.2 3640.0 2994.3 2309.8 1584.3 815.2 Principal pmt=Annual pmt-Interest 8042.0 8524.5 9036.0 9578.2 10152.8 10762.0 11407.7 12092.2 12817.7 13586.8 Ending balance=Beg bal-Principal amt 97958.0 89433.5 80397.5 70819.3 60666.5 49904.5 38496.7 26404.5 13586.8 0.0

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