Question

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19.

Midtown Enterprises borrowed $100,000 for 5 years at a 12 percent interest rate, compounded monthly, and makes an equal amount of payment at the end of each month. How much principal payment is the firm making during the 2nd year?

$17,498

$11,164

$13,420

$15,447

18,970

Answer 1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

100000= Cash Flow*((1-(1+ 12/1200)^(-5*12))/(12/1200))

Cash Flow = 2224.44

Principal paid in 2nd year = PV of remaining CF in 1 year-PV of remaining CF in 2 year

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 2224.44*((1-(1+ 12/1200)^(-4*12))/(12/1200))

PV = 84470.79

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 2224.44*((1-(1+ 12/1200)^(-3*12))/(12/1200))

PV = 66972.34

Principal paid = 84470.79-66972.34=17498