Extra #4. A $10,000 loan will be repaid by 30 level annual payments at the end of each year. The annual effective interest rate i = 8%. a) Find the first time when the interest paid is less than the principal repaid. b) Find the first time the loan will first drop below $4,000. c) At the time found in part b), an additional principal payment of $1,000 is made. The size of the annual payment does not change, but the loan will be paid off earlier, with the last payment smaller than the usual payment. Find the time and amount of the last payment. d) Calculate the difference between the amount of interest that would have been paid on the original loan and the amount of interest paid on the loan as described in part c).
Extra #4. A $10,000 loan will be repaid by 30 level annual payments at the end of each year. The annual effective interest rate i = 8%. a) Find the first time when the interest paid is less than the principal repaid. b) Find the first time the loan will first drop below $4,000. c) At the time found in part b), an additional principal payment of $1,000 is made. The size of the annual payment does not change, but the loan will be paid off earlier, with the last payment smaller than the usual payment. Find the time and amount of the last payment. d) Calculate the difference between the amount of interest that would have been paid on the original loan and the amount of interest paid on the loan as described in part c).
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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Transcribed Image Text:Extra #4. A $10,000 loan will be repaid by 30 level annual payments at the end of each
year. The annual effective interest rate i = 8%.
a) Find the first time when the interest paid is less than the principal repaid.
b) Find the first time the loan will first drop below $4,000.
c) At the time found in part b), an additional principal payment of $1,000 is
made. The size of the annual payment does not change, but the loan will be
paid off earlier, with the last payment smaller than the usual payment. Find
the time and amount of the last payment.
d) Calculate the difference between the amount of interest that would have been
paid on the original loan and the amount of interest paid on the loan as
described in part c).
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