Question

Quantitative Problem: You need $11,000 to purchase a used car. Your wealthy uncle is willing to lend you the money as an amortized loan. He would like you to make annual payments for 5 years, with the first payment to be made one year from today. He requires a 5% annual return.

1. What will be your annual loan payments? Round your answer to the nearest cent. Do not round intermediate calculations.
   $
2. How much of your first payment will be applied to interest and to principal repayment? Round your answer to the nearest cent. Do not round intermediate calculations.
   Interest: $
   Principal repayment: $

Answer 1

		Annual rate(M)=	yearly rate/12=	5.00%	Annual payment=	2540.72
	Year	Beginning balance (A)	Annual payment	Interest = M*A	Principal paid	Ending balance
	1	11000.00	2540.72	550.00	1990.72	9009.28
	2	9009.28	2540.72	450.46	2090.26	6919.02
	3	6919.02	2540.72	345.95	2194.77	4724.25
	4	4724.25	2540.72	236.21	2304.51	2419.74
1	5	2419.74	2540.72	120.99	2419.74	0.00

Where

Interest paid = Beginning balance * Annual interest rate

Principal = Annual payment – interest paid

Ending balance = beginning balance – principal paid

Beginning balance = previous Year ending balance

Annual payment	Interest = M*A	Principal paid
2540.72	550.00	1990.72