a. What will be the principal component of the sixteenth payment? Principal $ b. What will be the interest portion of the fifth payment? Interest $ c. How much will Payments 8 to 14 inclusive reduce the principal balance? Principal reduction $

a. What will be the principal component of the sixteenth payment? Principal $ b. What will be the interest portion of the fifth payment? Interest $ c. How much will Payments 8 to 14 inclusive reduce the principal balance? Principal reduction $

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter4: Time Value Of Money

Section4.17: Amortized Loans

Problem 1ST

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Concept explainers

Mortgages

A mortgage is a formal agreement in which a bank or other financial institution lends cash at interest in return for assuming the title to the debtor's property, on the condition that the obligation is paid in full.

Mortgage

The term "mortgage" is a type of loan that a borrower takes to maintain his house or any form of assets and he agrees to return the amount in a particular period of time to the lender usually in a series of regular equally monthly, quarterly, or half-yearly payments.

Question

A $51,000 loan at 9.6% compounded semiannually
is to be repaid by semiannual payments of $3,900
(except for a smaller final payment). (Do not round
intermediate calculations and round your final
answers to 2 decimal places.)
a. What will be the principal component of the
sixteenth payment?
Principal $
b. What will be the interest portion of the fifth
payment?
Interest $
c. How much will Payments 8 to 14 inclusive reduce
the principal balance?
Principal reduction $
d. How much interest will be paid in the fifth year?
Interest paid $
e. What will be the final payment?
Final payment $

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