Question

Upon graduation, Jeffrey Feldhusen borrows $15,000 to finance a late model used car. The loan is made by a family member who wishes to have equal annual payments at 11 % over 4 years.

a) How much are the annual payments?

b) How many total dollars of interest does Jeffrey pay over the life of the loan?

c) How much of the second payment goes to pay interest?

d) How much of the second payment goes to pay principal?

e) Develop a table. Year Beginning Balance Loan Payment Interest Payment Principal Payment Ending Balance

Answer 1

A) Annual payment = 15000(A/P, 11%, 4) = 4834.90

B) Total interest = 4834.90*4 - 15000 = 4339.60

C) Interest in 2nd payment = 4834.90(P/A, 11%, 4 - 2 + 1)*11% = 1299.70

D) Principal in 2nd payment = A(P/F, 11%, 4 - 2 + 1) = 3535.20

E) Table is shown below

Year	Opening balance	Interest payment	Payment of principal	Loan payment	Remaining loan balance
0		0.0	0.0	0.0	15000.0
1		1650.0	3184.9	4834.9	11815.1
2		1299.7	3535.2	4834.9	8279.9
3		910.8	3924.1	4834.9	4355.7
4		479.1	4355.8	4834.9	0.0