Question

Hector “Tio” Salamanca is in the market to purchase a new 2017 Atlantis Heavy Duty Power Wheel Chair complete with bell. The list price of the wheel chair is $5,500. The Juarez Cartel has raised $750 which will be used as a down payment for the purchase of the wheel chair. The remainder will be financed at a compound interest rate of 10% per year to be paid back in four yearly payments. a. Compute the amount of the annual payment. b. Compute the interest payment for the third year. c. How much would be owed after making the second yearly payment?

Answer 1

List price of the wheel chair = $5500

Down payment = $750

The amount of loan = 5500-750 = $4750

R = 10%

Time = 4year

A.

Let, annual payment = P

4750 = P*(1-1/(1+10%)^4)/.1

4750 = P*3.17

P = 4750/3.17

P = $1498.42

So, the annual payment will be $1498.42.

B.

The loan amortization schedule is as follows:

			R =	10%
			P =	4750
Year	Annual payment	Principle paid	Interest paid	Loan amount left for the payment
1	1498.42	1023.42	475.00	3726.58
2	1498.42	1125.76	372.66	2600.82
3	1498.42	1238.34	260.08	1362.48
4	1498.42	1362.17	136.25	0.31

As per the above tabular data,

Interest payment for the year 3 = $260.08

C.

Loan amount left for the payment after year 2 =$2600.82 ( on the basis of above tabular data)