payments beginning next June 30. Next year lan must report on Schedule B of her
ID: 2821965 • Letter: P
Question
payments beginning next June 30. Next year lan must report on Schedule B of her IRS Form 1040 the amoun during the year. t of interest that was included in the two payments she re a. What is the dollar amount of each payment Jan receives? Round your answer to the nearest cent. 3371.98 b. How much interest was included in the first payment? Round your answer to the nearest cent $ 1750.00 How much repayment of principal was indluded? Round your answer to the nearest cent. $1621.98 change for the second payment? Select- I. The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal increases. II. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal decreases. III. The portion of the payment that is applied to interest and the portion of the payment that is applied to prindipal remains the same throughout the life of the loan. IV. The portion of the payment that is applied to interest decines, while the portion of the payment that is applied to principal also dedines. V. The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal also increases. d. If the payments are constant, why does the amount of interest . As the loan is amortized (paid offi), the beginning balance, hence the interest charge, increases and the repayment of principal increases Il. As the loan is amortized (paid off), the beginning balance, hence the interest charge, dedines and the repayment of principal increases III. As the loan is amortized (paid off), the beginning balance, hence the interest charge, dedines and the repavment of principal dedines. e here to searchExplanation / Answer
EMI = P × r × (1 + r) n / {(1 + r)n - 1 }
Where,
P = Principal = $ 35,000
r = rate of interest = 10 % p.a. or 0.10/2 = 0.05 semiannually
n = No. of periods = 10 years x 2 = 20 periods
Equal semiannual payment = $ 35,000 x 0.05 x (1 + 0.05)20 / {(1 + 0.05) 20 -1}
= $ 35,000 x 0.05 x (1.05)20 / {(1.05) 20 -1}
= $ 35,000 x 0.05 x 2.653297705/ (2.653297705-1)
= $ 35,000 x 0.05 x 2.653297705/1.653297705
= $ 35,000 x 0.05 x 1.604851744
= $ 2,808.490552 or $ 2,808.49
a.
Amount of each payment Jan received is $ 2,808.49
b.
Interest in first payment = $ 35,000 x 0.05 = $ 1,750
c.
Principal repayment = $ 2,808.49 - $ 1,750 = $ 1,058.49
d.
Principal of the loan goes on decreasing as loan period proceeds.
So interest amount goes on decreasing for this diminished principal. As each payment are constant, for every successive payment, contribution towards principal goes on increasing.
Hence option I “The portion of payment that is applied to interest declines, while the portion of the payment that is applied to principal increasing” is correct answer.
c.
Interest for 2nd payment = Remaining principal x rate of interest
= ($ 35,000 – $ 1,058.49) x 0.05
= $ 33,941.50 x 0.05 = $ 1697.08
Interest on loan for first year = $ 1,750 + $ 1,697.08 = $ 3,447.08
No, interest will be different for next year.
d.
Some part of the installment goes to principal, which results to decrease in principal on every successive payment. So interest amount goes on decreasing accordingly. On progression of loan period, contribution towards interest decreases and principal goes on increasing.
So for the constant payment, interest income changes over time.
Option IInd “As the loan is amortized (paid-off), the beginning balance, hence the interest charge, decline and the repayment of principal increases.” is correct answer.
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