A bank makes a 5-year $75,000 loan with no principal payments in years 1-2 and principal payments of $25,000 in Years 3, 4 and 5. The interest rate is 8% and will be paid every year. What interest and principal is paid in year 4
A bank makes a 5-year $75,000 loan with no principal payments in years 1-2 and principal payments of $25,000 in Years 3, 4 and 5. The interest rate is 8% and will be paid every year. What interest and principal is paid in year 4
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
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A bank makes a 5-year $75,000 loan with no principal payments in years 1-2 and principal payments of $25,000 in Years 3, 4 and 5. The interest rate is 8% and will be paid every year. What interest and principal is paid in year 4
A $6,000 + $25,000
B $6,000+$50,000
C $4,000+$25,000
D $4,000+$50,000
Expert Solution
Step 1
To solve the question, we need to make an amortization table.
The logic to compute the amortization table is as follows:
Interest = Previous period balance x interest rate (8%)
Principal = Amount given for that year ($25,000 in year 3,4 and 5)
Payment = Interest + Principal
Balance = Previous period balance - principal
Step by step
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