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# Straight line depreciation and EMI of a loan

1. The book value of a machine is \$21,000 at the end of its fourth year of life and \$14,000 at the end of its sixth year of life. What was the purchase value of the machine, assuming that "straight line depreciation" is being used.

("Straight line depreciation" means the decline in value is a straight line, so find the equation of the straight line connecting the two points. The "purchase price" would then be the "y-intercept.")

2. You are offered a home mortgage of \$200,000, 30 year term at 6% but for the first five years your payment would be \$800 per month. After five years payments will be recomputed at the 6% rate on the remaining balance to pay off the loan in the remaining 25 years.

a. What would the payments be on the loan at the 6% rate?

b. What will the mortgage amount be at the end of five years at the \$800 per month payment?

c.After the five year teaser payment years what will the payments be to pay off the new mortgage in the remaining 25 years?

#### Solution Preview

Solutions:

1.The book value of a machine is \$21,000 at the end of its fourth year of life and \$14,000 at the end of its sixth year of life. What was the purchase value of the machine, assuming that "straight line depreciation" is being used.

("Straight line depreciation" means the decline in value is a straight line, so find the equation of the straight line connecting the two points. The "purchase price" would then be the "y-intercept.")

Let x denotes number of years and y denotes book ...

#### Solution Summary

There are two problems. Solution to first problem describes the step to fing out purchase value of the machine assuming that "straight line depreciation" is being used. Solution to second problem explains the steps to find periodic payment of a loan.

\$2.19