If I borrow 60,000 from the bank at 10% interest over the seven-year life of the loan, what equal annual payments must be made to discharge the loan plus pay the bank its required rate of interest. Annual payments_____. How much of this first payment will be applied to interest? to principal? Also how much of my second payment will be applied to interest? Principal?
Also I have purchased an annuity to begin payment at the end of 2011 (that is the date of the first payment). Assume it is now the beginning of the year 2009. The annuity is for 8,000 per year and is designed to last 10 years. - If the interest rate for this problem calculation is 13 percent, what is the most I should have paid for the annuity. (round PV Factor to 3 decimal places)
Using an Excel 97-2003 spreadsheet, this solution illustrates how to use Excel to compute the periodic annuity payments on a bank loan as well as the present value of a deferred annuity (i.e., one which starts in the future).