Question

If your uncle borrows $69,000 from the bank at 11 percent interest over the nine-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.)
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.)
c. How much of his second payment will be applied to each? (Do not round intermediate calculations Round your final answers to 2 decimal places.)

Answer 1

a. The annual payment to be made is $12,461.51

b. On first installment interest portion is $7,590 and principal portion is $4,871.51

c. The Interest portion in the second installemnt is $7,054.13 and Principal portion is $5,407.38.

Step-by-step explanation:

a. According to the given data we have the following:

Loan Amount (Present Value) = $69,000.

Nper = 9 years

Rate = 11%.

Future value = 0

You would have to Compute annual payment using excel function as follows:

Pmt = Pmt(11%,9,-69000,0)

= $12,461.51.

Therefore, annual payment to be made is $12,461.51.

b. To calculate the amount of his first payment to be applied to interest and To principal we would have to make the following calculation:

Interest = $69,000*11% = 7,590.

Installement amount = 12,461.51.

Principal portion = 12,461.51-7590 = $4,871.51.

Therefore, On first installment interest portion is $7,590 and principal portion is $4,871.51.

c. To calculate How much of his second payment will be applied to each we would have to make the following calculations:

Principal Balance at the beginning of the second is $69,000 -$4871.51 = $64128.49.

Interest portion in the second installemnt = $64,128.49 * 11% = $7,054.13.

Principal portion = $12461.51-$7054.13 = $5,407.38.