Lorkay Seidens Inc. just borrowed $25,000. The loan is to be repaid in equal installments at the 22 end of each of the next five years, and the interest rate is 10 percent. a. Set up an amortization schedule for the loan. b. How large must each annual payment be if the loan is for $50,000? Assume that the interest rate remains at 10 percent and that the loan is paid off over five years. c. How large must each payment be if the loan is for $50,000, the interest rate is 10 percent, and the loan is paid off in equal installments at the end of each of the next 10 years? This loan is for the same amount as the loan in part (b), but the payments are spread out over twice as many periods. Why are these payments not half as large as the payments on the loan in part (b)?
Lorkay Seidens Inc. just borrowed $25,000. The loan is to be repaid in equal installments at the
22
end of each of the next five years, and the interest rate is 10 percent.
a. Set up an amortization schedule for the loan.
b. How large must each annual payment be if the loan is for $50,000? Assume that the
interest rate remains at 10 percent and that the loan is paid off over five years.
c. How large must each payment be if the loan is for $50,000, the interest rate is 10 percent,
and the loan is paid off in equal installments at the end of each of the next 10 years? This
loan is for the same amount as the loan in part (b), but the payments are spread out over
twice as many periods. Why are these payments not half as large as the payments on the
loan in part (b)?
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