Your uncle borrows $63,000 from the bank at 9 percent interest over the seven-ye
ID: 2821854 • Letter: Y
Question
Your uncle borrows $63,000 from the bank at 9 percent interest over the seven-year life of the loan. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods.
a. What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Annunal payments =
b. How much of his first payment will be applied to interest? To principal? (Do not round intermediate calculations. Round your final answers to 2 decimal places.)
First Payment
Interest =
Principal =
Second Payment
Interest =
Principal =
Explanation / Answer
a.Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
63000=Annuity[1-(1.09)^-7]/0.09
63000=Annuity*5.032952835
Annuity=63000/5.032952835
=$12517.50(APPROX).
b.
Year Beginning balance Annual payment Interest payment Principal payment Ending balance 1 63000 12517.50 (63000*9%)=$5670 (12517.50-5670)=$6847.50 (63000-6847.5)=$56152.50 2 56152.5 12517.50 (56152.5*9%)=$5053.73 (12517.50-5053.73)=$7463.78(Approx)Related Questions
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