Question

Amortization.  Loan Consolidated Incorporated​ (LCI) is offering a special​ one-time package to reduce Custom​ Autos' outstanding bills to one​ easy-to-handle payment plan. LCI will pay off the current outstanding bills of ​$242 comma 000 for Custom Autos if Custom Autos will make an annual payment to LCI at an interest rtae of 9 ​% over the next 5 years.   a.  What are the annual payments of the​ loan? b.  What is the amortization schedule for this loan if Custom Autos wants to pay off the loan before the loan maturity in 5 ​years? c.  When will the balance be half paid​ off?   d.  What is the total interest expense on the loan over the 5 ​years?

Answer 1

Answer:

Please find the complete question in the attached file.

Explanation:

Use PMT for the interest amount computation

$PMT(12\%, 55, 232000, 0 , 0) = \ 27,894.77$

At first, the bulk of an initial premium is paid at the rate of interest, and that only the remainder of the small part is used for  amortization. The very first three years schedule is shown below:

$Loan\ \ \ \ \ \ \ \ \ \ Annual\ \ \ \ \ \ \ \ \ \ Interest\ \ \ \ \ \ \ \ \ \ Principal$

$1\ \ \ \ \ \ \ \ \ 232,000.00\ \ \ \ \ \ \ \ \ 27,894.77\ \ \ \ \ \ \ \ \ 27,840.00\ \ \ \ \ \ \ \ \ 54.77\\\\2\ \ \ \ \ \ \ \ \ 231,945.23\ \ \ \ \ \ \ \ \ 27,894.77\ \ \ \ \ \ \ \ \ 27,833.43\ \ \ \ \ \ \ \ \ 61.34\\\\3\ \ \ \ \ \ \ \ \ 231,883.89 \ \ \ \ \ \ \ \ \ 27,894.77\ \ \ \ \ \ \ \ \ 27,826.07\ \ \ \ \ \ \ \ \ 68.70$

By the 49th payment, upwards of half of the initial amount borrowed would be the total principal paid. Using the formula CUMPRINC in excel, the entire principal payment is calculated twice.

Total Interest Expense $= 27,894.77 \times 55 - 232,000 = \ 1,302,212.27$