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Time Value of Money

1.) You have just purchased a car and taken out a $50,000 loan. The loan has a five year term with monthly payments and an APR of 6%.

a.) How much will you pay in interest, and how much will you pay in principal, during the first month, second month, and first year? (Hint: complete the loan balance after one month, two months and one year).

b.) How much will you pay in interest, and how much will you pay in principal, during the fourth year (i.e., between three and four years from now)?

2.) When you purchased your car, you took out a five year annual payment loan with an interest rate of 6% per year. The annual payment on the car is $5000. You have just made a payment and have now decided to pay the loan off by repaying outstanding balance. What is the payoff amount if

a) You have owned the car for one year (so there are four years left on the loan)?

b) You have owned the car for four years (so there is one year left on the loan)?

Solution Preview

Please refer attached file for amortization tables.

Loan Amount =$50,000
Interest rate=6%/12=0.50%
Number of periods=60 months
Type of payment=0 month end payments
FV of loan=0
Annual year end payment= $966.64

a) How much will you pay in interest, and how much will you pay in principal, during the first month, second month, and first year? (Hint: compute the loan balance after one month, two months and one year).

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Solution Summary

Solution describes the steps to calculate interest paid and principal left of loan at the end of certain period.

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