Cal Lury owes $29,000 now. A lender will carry the debt for eight more years at
ID: 2788005 • Letter: C
Question
Cal Lury owes $29,000 now. A lender will carry the debt for eight more years at 9 percent interest. That is, in this particular case, the amount owed will go up by 9 percent per year for eight years. The lender then will require that Cal pay off the loan over the next 16 years at 12 percent interest.
What will his annual payment be? Use Appendix A and Appendix D for an approximate answer, but calculate your final answer using the formula and financial calculator methods. (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Cal Lury owes $29,000 now. A lender will carry the debt for eight more years at 9 percent interest. That is, in this particular case, the amount owed will go up by 9 percent per year for eight years. The lender then will require that Cal pay off the loan over the next 16 years at 12 percent interest.
Explanation / Answer
Find the value of the loan in 8 years.
PV = FV/(1+r)^n
PV - Present value
FV - Future value
r - Interest rate
n - no. of periods
FV = 29000*(1+0.09)^8 = 57784.32
Periodic payment of a loan is given by
P = L[r(1 + r)^n]/[(1 + r)^n - 1]
P - Periodic payment = ?
r - Interst rate = 0.12
n - Term = 16
L - Loan amount = 57784.32
P = 57784.32*(0.12*(1 + 0.12)^16)/((1 + 0.12)^16 - 1) = 8285.69
Annual payment = $8285.69
Using financial calculator, give the following values
N = 16
I/Y = 12
PV = 57784.32
CPT-> PMT = $8285.69