Question

6. You borrowed $10,000 today and agreed to pay $1,000 per year with an effective annual interest rate of 6%. After 5 years, you missed payments 6 & 7. Assuming no penalties for missed payments, please answer the following questions: a) What would be the worth of the outstanding balance at the end of year 7? b) To compensate for the missed payments, you have agreed to pay $1,500 per year starting at the end of year 8. How much would you pay in the last year on this new agreement?

Answer 1

Basis the details provided in the question below is the amortization schedule:

Year	POS	Interest	Pincipal	Closing POS
1	10000.00	600.00	400.00	9600.00
2	9600.00	576.00	424.00	9176.00
3	9176.00	550.56	449.44	8726.56
4	8726.56	523.59	476.41	8250.15
5	8250.15	495.01	504.99	7745.16
6	7745.16	464.71	-	8209.87
7	8209.87	492.59	-	8702.46
8	8702.46	522.15	977.85	7724.61
9	7724.61	463.48	1036.52	6688.09
10	6688.09	401.29	1098.71	5589.37
11	5589.37	335.36	1164.64	4424.74
12	4424.74	265.48	1234.52	3190.22
13	3190.22	191.41	1308.59	1881.64
14	1881.64	112.90	1387.10	494.53
15	494.53	29.67	494.53	0.00

a) Amount at he end of 7th year is 8702.46

b) Amount paid in last year is 524.21