Question

On January 1, 2020, Joe Exotic purchases a farm for his exotic animal park by issuing a 10-year, $500,000 installment note. The note requires quarterly payments at the end of each quarter and has an interest rate of 8%.

Link to PV Tables

ONLY INPUT NUMBERS. DO NOT INCLUDE A DOLLAR SIGN.

How many payments will Joe make?  

What i should you use for PV calculations?  

What is the amount of Joe's quarterly payment?  

What amount of interest expense will Joe record for the first payment on March 31, 2020?

What will the balance of the note be after the first payment?  

What amount of interest expense will Joe record for the second payment on June 30, 2020?

Answer 1

Working notes as follows:

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Date	Installment	Interest [8%/4 quarter = 2%]	Principal	Balance
Jan. 01, 2020				$500,000
Mar. 31, 2020	$12,500	$10,000.00	$2,500.00	$497,500.00
Jun. 30, 2020	$12,500	$9,950.00	$2,550.00	$494,950.00

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1.

Number of payments = 40 payments

2.

"i" is the rate = 2%

3.

Joe's quarterly payment = $12,500

4.

Interest expense for first payment = $10,000

5.

Balance of note payable after first payment = $497,500

6.

Interest expense for 2nd payment = $9,950