Jan sold her house on December 31 and took a 5,000 mortgage as part of the payme

Question

Jan sold her house on December 31 and took a 5,000 mortgage as part of the payment. The 10 year mortgage has a 8% nominal rate,but its calls for semiannual payments beginning next June 30. Next year Jan report on Schedule B of her IRS form 1040 the amount of interest that was included in the two payments she received during the year. a. what is the dollar amount of each payment Jan receives? how much interest was included in the first payment? how much repayment of principal was included ? How do these values change for the second payment ? b. how much interest must Jan report on Schedule B for the first year ? c. will the interest Income be the same next year ? d. If the payments are constant, why does the amount of interest income change over time? Set problem up using an BA II Plus calculator

Explanation / Answer

N = 10 x 2 = 20 I/Y = 10/2 = 5 PV = -5000 FV = 0 CPT PMT = 1604 b. The first payment included the interest payable on the whole principal ($5000) for the six month period

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