Answer:
a)Annual Repayment Installment:$2,812.1
b)
Amount to be applied to interest:$1040
Amount to be applied to principal: $1772.10
Explanation:
The annual payment which will be used to offset the loan is computed as
follows:
Annual Installment = Loan amount/annuity factor
Annuity factor = (1 - (1+r)^(-n)/r )
= 1- (1+0.08)^(-6)/0.08)
= 4.6228
Annual Repayment Installment
= 13,000/4.6228
= $2,812.1
b) Amount of first payment to be applied to Interest and principal :
Amount to be applied to interest:
Interest due in year 1 = 8% × $13,000
= $1040
Amount to be applied to principal:
= $2,812.1-1040
= $1772.10
Annual Repayment Installment:$2,812.1
Amount to be applied to interest:$1040
Amount to be applied to principal: $1772.10
