An amount of $13,000 is borrowed from the bank at an annual interest rate of 14%. a. Calculate the equal end-of-year payments required to completely pay off the loan in 4 years. b. Calculate the repayment amounts if the loan ($13,000) will be repaid in two equal installments of $6,500 each, paid at the end of second and fourth years respectively. Interest will be paid each year.

An amount of $13,000 is borrowed from the bank at an annual interest rate of 14%. a. Calculate the equal end-of-year payments required to completely pay off the loan in 4 years. b. Calculate the repayment amounts if the loan ($13,000) will be repaid in two equal installments of $6,500 each, paid at the end of second and fourth years respectively. Interest will be paid each year.

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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Concept explainers

Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.

Question

An amount of $13,000 is borrowed from the bank at an annual interest rate of 14%.
a. Calculate the equal end-of-year payments required to completely pay off the loan in 4 years.
b. Calculate the repayment amounts if the loan ($13,000) will be repaid in two equal installments of $6,500 each, paid at the end of second and fourth years
respectively. Interest will be paid each year.

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