(b) Suppose the bank splits the loan into six 1-year loans, so that the future value of the loan would be recalculated at the end of each one-year period, with interest charged on the new amount for the next year. Fill in the following table, which will show the future value of the loan at the end of each 1-year period. Round to the nearest dollar. End of Year Future Value, $ 1 2 3 4 5 6 X Ś
(b) Suppose the bank splits the loan into six 1-year loans, so that the future value of the loan would be recalculated at the end of each one-year period, with interest charged on the new amount for the next year. Fill in the following table, which will show the future value of the loan at the end of each 1-year period. Round to the nearest dollar. End of Year Future Value, $ 1 2 3 4 5 6 X Ś
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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you have borrowed $11,200 for school expenses at 6% simple interest rate for 6 years. After six years you would pay $4032 in simple interest. Now, suppose the bank splits the loan into 6 one year loans
![### Section 2.3 – Part 2 of 4
#### Loan Splitting and Future Value Calculation
**Question:**
(b) Suppose the bank splits the loan into six 1-year loans, so that the future value of the loan would be recalculated at the end of each one-year period, with interest charged on the new amount for the next year. Fill in the following table, which will show the future value of the loan at the end of each 1-year period. Round to the nearest dollar.
| End of Year | 1 | 2 | 3 | 4 | 5 | 6 |
|-------------|---|---|---|---|---|---|
| Future Value, $ | [ ] | [ ] | [ ] | [ ] | [ ] | [ ] |
**Explanation:**
- The table provided aids in breaking down the recalculation of the loan's future value at the end of each year over a six-year period.
- You need to fill in the future value of the loan at the end of each year, considering that the interest is applied to the new amount annually.
- This exercise involves applying the formula for compound interest or similar financial calculations at the end of each year.
To proceed with the calculation, you would typically use the compound interest formula: \( A = P(1 + \frac{r}{n})^{nt} \), where:
- \( A \) = future value of the loan
- \( P \) = principal amount (initial loan amount)
- \( r \) = annual interest rate
- \( n \) = number of times interest is compounded per year
- \( t \) = time the money is invested or borrowed for, in years
Given our case:
- You would calculate for each year, update the principal for the next year, and continue on.
- Ensure values are rounded to the nearest dollar as specified.
Use the provided interface tools to check your work or save it for later.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Faf54cc92-fe70-42ec-a5a5-6c03b8447a69%2F88a3037d-2ce1-4d7e-81e7-539c53a35231%2Ftvusg2b_processed.png&w=3840&q=75)
Transcribed Image Text:### Section 2.3 – Part 2 of 4
#### Loan Splitting and Future Value Calculation
**Question:**
(b) Suppose the bank splits the loan into six 1-year loans, so that the future value of the loan would be recalculated at the end of each one-year period, with interest charged on the new amount for the next year. Fill in the following table, which will show the future value of the loan at the end of each 1-year period. Round to the nearest dollar.
| End of Year | 1 | 2 | 3 | 4 | 5 | 6 |
|-------------|---|---|---|---|---|---|
| Future Value, $ | [ ] | [ ] | [ ] | [ ] | [ ] | [ ] |
**Explanation:**
- The table provided aids in breaking down the recalculation of the loan's future value at the end of each year over a six-year period.
- You need to fill in the future value of the loan at the end of each year, considering that the interest is applied to the new amount annually.
- This exercise involves applying the formula for compound interest or similar financial calculations at the end of each year.
To proceed with the calculation, you would typically use the compound interest formula: \( A = P(1 + \frac{r}{n})^{nt} \), where:
- \( A \) = future value of the loan
- \( P \) = principal amount (initial loan amount)
- \( r \) = annual interest rate
- \( n \) = number of times interest is compounded per year
- \( t \) = time the money is invested or borrowed for, in years
Given our case:
- You would calculate for each year, update the principal for the next year, and continue on.
- Ensure values are rounded to the nearest dollar as specified.
Use the provided interface tools to check your work or save it for later.
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