Question

On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.5 million...

On January 1 of year 1, Arthur and Aretha Franklin purchased a home for $1.5 million by paying $200,000 down and borrowing the remaining $1.3 million with a 7 percent loan secured by the home. The Franklins paid interest only on the loan for year 1 and year 2 (unless stated otherwise). (Enter your answers in dollars and not in millions of dollars. Do not round intermediate calculations. Leave no answer blank. Enter zero if applicable.)

b. What is the amount of interest expense the Franklins may deduct in year 2 assuming year 1 is 2018?

c. Assume that year 1 is 2019 and that in year 2, the Franklins pay off the entire loan but at the beginning of year 3, they borrow $300,000 secured by the home at a 7 percent rate. They make interest-only payments on the loan during the year and they use the loan proceeds for purposes unrelated to the home. What amount of interest expense may the Franklins deduct in year 3 on this loan?

Homework Answers

Answer #1

Amount of Installment =PMT(C273,C274,-C272)

Interest  =B280*7%

Principal=C280-D280

Ending Balance=B280-E280

So the amount of Interest for year 2 is 47439$.

(C)

Year 3 only has Loan of 300000$ only so Interest will be Payable for One year only at the rate of 7%

amount of interest in Year 3 = 300000*7%*1

= 21000$

I hope my efforts will be fruitful to you....?

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