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To pay off a loan of $8,900 due in five years, a person will make a...

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Finance

To pay off a loan of $8,900 due in five years, a person willmake a deposit at the end of each year into an account paying 9.3%interest compounded annually. Determine the size of the depositrounded up to the nearest half-dollar and construct a table thatshows the size of each deposit, the amount of interest, and thebalance after each payment.

Answer & Explanation Solved by verified expert
4.0 Ratings (421 Votes)

a) Size of payment = Loan amount / Present value of annuity of 1
= $ 8,900.00 / 3.8595618
= $ 2,305.96
Working:
Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.093)^-5)/0.093 i = 9.30%
= 3.8595618 n = 5
b) Amortization Schedule:
Year Beginning Loan Interest Expense Annual payment Reduction of principal Ending Loan amount
a b=a*9.30% c d=c-b e=a-d
1 $ 8,900.00 $ 827.70 $ 2,305.96 $ 1,478.26 $ 7,421.74
2 $ 7,421.74 $ 690.22 $ 2,305.96 $ 1,615.74 $ 5,806.00
3 $ 5,806.00 $ 539.96 $ 2,305.96 $ 1,766.00 $ 4,040.00
4 $ 4,040.00 $ 375.72 $ 2,305.96 $ 1,930.24 $ 2,109.75
5 $ 2,109.75 $ 196.21 $ 2,305.96 $ 2,109.75 $        -0.00

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Transcribed Image Text

To pay off a loan of $8,900 due in five years, a person willmake a deposit at the end of each year into an account paying 9.3%interest compounded annually. Determine the size of the depositrounded up to the nearest half-dollar and construct a table thatshows the size of each deposit, the amount of interest, and thebalance after each payment.

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