Assume that your aunt sold her house on December 31, and to help dose the sale s
ID: 2756920 • Letter: A
Question
Assume that your aunt sold her house on December 31, and to help dose the sale she took a second mortgage m the amount of $10,000 as part of the payment. The mortgage has a quoted (or nominal) interest rate of 10%; it calls for payments every 6 months, beginning on June 30, and is to be amortized over 10 years. Now, 1 year later, your aunt must inform is 1RS and the person who bought the house about the interest that was included in the two payments made during the year. (This interest will be income to your aunt and a deduction to the buyer of the house.) To the closest dollar, what is the total amount of interest that was paid during the first year?Explanation / Answer
No. of payments = 10*2= 20 interest , 10/2= 5%
PV=($10,000)
Therefore FV=0 PMT= =$802.43
so the payments, which are $802.43 every six months.
For the first six months, interest earned was $500 (10000 x 10% / 2).
For the second six months, the principal amount was 9697.57 (10000 - 802.43 + 500.00).
Interest for the second six months is $484.88 (9697.57 x 10% / 2)
Total interest earned for the year= $500+$484.88= $948.88
rounding of to nearest dollar, was $985.