Question

The Don'tYouLoveFinance? Company borrows $500,000 today to be repaid in equal end-of-year payments over 10 years. The loan has an interest rate of 5%/year.
a) (6 points) What is the equal payment at the end of each of the 10 years? SHOW ALL WORK using the time value of money buttons on the TI BAII Plus Calculator for full credit.
b) (3 points) Using the AMORT function on the calculator, what is the loan balance at the end of year 6? Show all buttons including P1 and P2.
c) (2 points) What is the total interest expense paid in the first 3 years? Show P1 and P2.

NEEDS TO SHOW WITH TI BAII PLUS CALCULATOR!!! SHOW ALL WORK

Answer 1

a)

1. Type 10, then press the "N" button.

2. Type 5, then press the "I/YR".

3. Type 500,000, then press the "PV" button (This is positive because cash is received)

4. Type 0, then press the "FV" button (fully amortised loan)

5. To display the fixed payment, press the CPT button, then press the "PMT" button.

-64,752.28748 (negative sign asits an outflow for the company)

Answer, Equal payment at end of each of 10 years = 64,752.28748

b)

Press the 2ND button, then press the "AMORT" button.

To display data for period 6 press 6, then press the enter button. (This will enter P1 = 6)

Press the down arrow button and set P2 to 6.

Press the down button again and again to see folowing period 6 data.

BAL= 229,608.4064

PRN= -50,735.11158

INT= -14,017.1759

Answer, Loan balance at end of period 6 = 229,608.4064

c) Set P1 = 1 and P2 =3

Press down arrow 3 times to see INT = -68,937.77616

Answer,  total interest expense paid in the first 3 years = 68,937.77616.