eBook Problem Walk-Through
Jan sold her house on December 31 and took a $50,000 mortgage as
part of the payment. The 10-year mortgage has a 12% nominal
interest rate, but it calls for semiannual payments beginning next
June 30. Next year Jan must report on Schedule B of her IRS Form
1040 the amount of interest that was included in the two payments
she received during the year.
a. What is the dollar amount of each payment Jan
receives? Round your answer to the nearest cent.
$
b. How much interest was included in the first payment?
Round your answer to the nearest cent.
$
How much repayment of principal was included? Do not
round intermediate calculations. Round your answer to the nearest
cent.
$
How do these values change for the second
payment? (pick best answer choice)
- The portion of the payment that is applied to interest
declines, while the portion of the payment that is applied to
principal increases.
- The portion of the payment that is applied to interest
increases, while the portion of the payment that is applied to
principal decreases.
- The portion of the payment that is applied to interest and the
portion of the payment that is applied to principal remains the
same throughout the life of the loan.
- The portion of the payment that is applied to interest
declines, while the portion of the payment that is applied to
principal also declines.
- The portion of the payment that is applied to interest
increases, while the portion of the payment that is applied to
principal also increases.
How much interest must Jan report on Schedule B for the
first year? Do not round intermediate calculations. Round your
answer to the nearest cent.
$
Will her interest income be the same next year?(bold
letters are answer choices pick best answer)
A.Her interest income will increase in each
successive year. B. Her interest income will
remain the same in each successive year.
C.She will not receive interest
income, only a return of capital. D.Her
interest income will decline in each successive
year. E.She will
receive interest only when the mortgage is paid off in 10
years.Item 6
If the payments are constant, why does the amount of
interest income change over time?
- As the loan is amortized (paid off), the beginning balance,
hence the interest charge, increases and the repayment of principal
increases.
- As the loan is amortized (paid off), the beginning balance,
hence the interest charge, declines and the repayment of principal
increases.
- As the loan is amortized (paid off), the beginning balance,
hence the interest charge, declines and the repayment of principal
declines.
- As the loan is amortized (paid off), the beginning balance,
hence the interest charge, increases and the repayment of principal
declines.
- As the loan is amortized (paid off), the beginning balance
declines, but the interest charge and the repayment of principal
remain the same.
|