Stat 4183 Home work # 5 Name

Fall 2011

Warning: only a sketch of solutions. please spend some time nishing up the numerical calculation, which is required in the exam! 1. A loan of $1000 is being repaid with quarterly payments at the end of each quarter for 4 years at 6% convertible quarterly. Find the outstanding loan balance at the end of the second year and nd the amount of principal in the 6th installment. Let R denote the amt of quarterly payment. Ra16 0.015 = 1000 and the loan balance at the P end of the second yr B8 = Ra8 0.015 and P6 = Rv 166+1 . 2. A loan is being repaid with installment of 100 at the end of each year for 10 years. Interest is at eective rate i for the rst 5 years and eective rate j for the second 5 years. Find the expressions for the amount of interest paid in the third installment and the amount P of principal repaid in the seventh installment. L = 100a5 i + 100a5 j (1 + i)5 ; B2 = 3 ; I = i B P ; B P = 100a ; I = i B P ; P = 100 I . 100a3 i + 100a5 j (1 + i) 3 7 7 7 2 6 4j 6 3. A 30-year loan is to be repaid with equal installments at the end of each year. The amount of interest paid in the 3rd installment is a; the amount of interest paid in the 17th installment is b. Find the expression for the interest paid in the 24th installment. I3 = a = R(1 v 28 ); I17 = b = R(1 v 14 ). to nd v7 = (a/b 1)1/2 . I24 = I17 /(1 + v 7 ) = .... 4. A has borrowed $10,000 on which interest is charged at 8% eective. A is accumulating a sinking fund at 6% eective to repay the loan. At the end of 10 years the balance in the sinking fund is $4000. At the end of the 11th year A makes a total payment of $1000. (a) how much of the $1000 pays interest currently on the loan? I11 = L i. (b) how much of the $1000 goes into the sinking fund? R11 I11 = 200. (c) how much of the $1000 should be considered as interest? the sinking fund earns interest 4000 0.06, L i 240 = 560 interest. (d) how much of the $1000 should be considered as principal? 1000 560 = 440 principal. (e) what is the sinking fund balance at the end of the 11th year? 4000 1.06 + 200. 5. On a loan of $1000 interest at 9% eective must be paid at the end of each year. The borrower also deposit $X at the beginning of each year into a sinking fund earning 6% eective. At the end of 10 years the sinking fund is exactly sucient to pay o the loan. Calculate the X. X S10 0.06 = 1000. 6. A borrows $10,000 for 5 years at 10% convertible semiannually. A replaces the principal by means of deposits at the end of every year for 5 years into a sinking fund which earns 8% eective. Find the total dollar amount which A must pay over the ve year period to completely repay the loan. XS5 0.08 = 10000; 10000 (0.10/2) 10 + 5X 7. A loan is repaid with payments which start at $100 the rst year and increase by $100 per year until a payment of $800 is made, at which time payments cease. If the interest is 4% eective, nd the amount of principal in the 4th payment. B3 = 400v + 500v 2 + ... + 800v 5 ; 1.04B3 = 400 + 500v + ... + 800v 4 ; B3 = (1.04B3 B3 )/0.04 = ...; I4 = i B3 ; P4 = 400 I4 .