Question

Mr. Bill S.​ Preston, Esq., purchased a new house for ​$140,000. He paid ​$30,000 upfront and agreed to pay the rest over the next 10 years in 10 equal annual payments that include principal payments plus 15 percent compound interest on the unpaid balance. What will these equal payments​ be?

a.  Mr. Bill S.​ Preston, Esq., purchased a new house for ​$140,000 and paid ​$30,000 upfront. How much does he need to borrow to purchase the​ house?

b.He paid ​$30,000 upfront and agreed to pay the rest over the next 10 years in 10 equal annual payments that include principal payments plus 15 percent compound interest on the unpaid balance.

Answer 1

Part A:

Loan Amount = Price - Upfront Paid

= $ 140000 - $ 30000

= $ 110000

Part B:

Particulars	Amount
Loan Amount	$         1,10,000.00
Int rate per Anum	15.0000%
No. of Years	10

Annual Instalemnt = Loan Amount / PVAF (r%, n)
Where r is Int rate per Anum & n is No. of Years
= $ 110000 / PVAF (0.15 , 10)
= $ 110000 / 5.0188
= $ 21917.73

PVAF = SUm [ PVF(r%, n) ]
PVF(r%, n) = 1 / ( 1 + r)^n
r = Int rate per period
n = No. of periods

How to calculate PVAF using Excel:
=PV(Rate,NPER,-1)
Rate = Disc Rate
NPER = No.of periods