You need $10,000 to purchase a used car. Your wealthy uncle is willing to lend you the money as an amortized loan. He would like you to make annual payments for 5 years, with the first payment to be made one year from today. He requires a 6% annual return. What will be your annual loan payments? Do not round intermediate calculations. Round your answer to the nearest cent. $ How much of your first payment will be applied to interest and to principal repayment? Do not round intermediate calculations. Round your answers to the nearest cent. Interest: $ 600 Principal repayment: $

Question

Kenley

Business

17 November, 23:00

You need $10,000 to purchase a used car. Your wealthy uncle is willing to lend you the money as an amortized loan. He would like you to make annual payments for 5 years, with the first payment to be made one year from today. He requires a 6% annual return. What will be your annual loan payments? Do not round intermediate calculations. Round your answer to the nearest cent. $ How much of your first payment will be applied to interest and to principal repayment? Do not round intermediate calculations. Round your answers to the nearest cent. Interest: $ 600 Principal repayment: $

+5

Answers (1)

Know the Answer?

Leonard Moore · Answer 1

a) Equal installment=$1,978.30

b) Principal and interest payment for the first year

Interest - $600

Principal = $1,378.3

Explanation:

a) Equal annual installment

The annual equal installment = Loan amount / Annuity factor

Annuity factor = (1 - (1+r) ^ (-n)) / r

r-6%, n-5,

Annuity factor - (1 - (1.06) ^ (-5)) / 0.06 = 5.0548

Equal installment = 10,000/5.0548 = $1,978.30

b) Principal and interest payment for the first year

Interest payment = 6% * $10,000 = $600

Principal payment = Installment - interest

= 1,978.30 - 600

= $1,378.3