Question

Please do it by type not pics.

1.Calculate the balance of the premium account at the end of Year 4 - Quarter 4 using the following information:

$80,000 four-year note with 12% interest. The market rate is 11%.  This note's payments are quarterly and interest also compounds quarterly.

Answer 1

ANSWER : balance of premium account at the end of YEAR 4 QUARTER 4 is 0

ANSWER is zero

working notes

interest paid (cash paid)=80000*12/100*3/12 =2400

price of the notes payable =FV*PV of cash flows for 4th year 4th quarter +quarter interest *PV of annuity for 4th year 4th quarter

= 80000 *0.647874238268 +2400*12.80457315389

=51830+30731=82561

amortization = interest paid - interest expense

ex = 2400-2270 = 130 for first quarter

calculating pv of cash flows for 4 year 4 quarter =1/(1+r)^tn

n= 4 years

q= 4 quarters

1/(1.0275)^16=0.647874238268

pv of annuity for year 4 quarter 4 = 1- 1/(1.0275)^16/0.0275=12.80457315389

r = 11/100*3/12 =0.0275