You areplanning to purchase a building for $40,000, and you have $10,000 to apply as adown payment. You may borrow the remainder under the following terms: a 10-yearloan with semiannual repayments and a stated interest rate of 6 percent. Youintend to make $6,000 payments, applying the excess over your required paymentto the reduction of the principal balance.a. Given these terms, how long (in years) willit take you to fully repay your loan?b. What will be your total interest cost?c. What would your interest cost be if you madeno prepayments and repaid your loan by strictly adhering to the terms of theloan?
You are
planning to purchase a building for $40,000, and you have $10,000 to apply as a
down payment. You may borrow the remainder under the following terms: a 10-year
loan with semiannual repayments and a stated interest rate of 6 percent. You
intend to make $6,000 payments, applying the excess over your required payment
to the reduction of the principal balance.
a. Given these terms, how long (in years) will
it take you to fully repay your loan?
b. What will be your total interest cost?
c. What would your interest cost be if you made
no prepayments and repaid your loan by strictly adhering to the terms of the
loan?
Loan is a financial agreement between lender and borrower. Lender lends money to borrower in exchange of Interest on money borrowed. Loan can be discharged in Lump-Sum or Installments as agreed in contract.
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