# Principal and interest payment computations

Cal owes $10,000 now, a lender will carry the debt for five more years at 10 percent interest. In this particular case, the amount owed will go up by 10 percent per year for 5 years. The lender then will require that Cal pay off the loan over the next 12 years at 11 percent interest. What will his annual payment be?

2) If your uncle borrows $60,000 from the bank at 10 percent 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(round to the nearest dollar)? how much of his first payment will be applied to interest? to principal? how much of his second payment will be applied to each?

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#### Solution Preview

1) Cal owes $10,000 now, a lender will carry the debt for five more years at 10 percent interest. In this particular case, the amount owed will go up by 10 percent per year for 5 years. The lender then will require that Cal pay off the loan over the next 12 years at 11 percent interest. What will his annual payment be?

PV = 10000

n = 5

Rate = 10%

Then ...

#### Solution Summary

Computations done using formula (long hand) rather than Excel or financial calculator.