Question

On April 1st, you will buy a boat for $500,000. You will pay $200,000 in cash at the time of purchase and borrow the remaining amount from the bank. This loan will be paid in four equal annual installments that include both the principal and 10 percent interest on the declining balance. Required: a) Determine the amount of the annual payment. b) Determine the total dollars of interest that you will pay for this loan. c) Determine the amount of interest that is included in the first payment. It is not necessary to complete an amortization schedule.

Answer 1

a. $94,641.24/year

b. $78,564.97

c. $30,000.00

Step-by-step explanation:

a. Fomular:
`P=(r(PV))/(1-(1+r)x^(-n) )` ≈
`($300,000 * 0.1)/(1-1+0.1)x^(-4)` = $94,641.24/year

b. P(1+i)n]−P = $78,564.97

c.
`(interest)/(no. payments) * loan princial = interest` = $30,000