Question

The interest rate on a $60,000 loan is 9.1% compounded semiannually. Quarterly payments will pay off the loan in fifteen years. (Do not round intermediate calculations and round your final answers to 2 decimal places.) a. Calculate the interest component of Payment 13. Interest $ b. Calculate the principal component of Payment 52. Principal $ c. Calculate the total interest in Payments 39 to 50 inclusive. Total interest d. Calculate the reduction of principal in Year 4. Principal reduction $

Answer 1

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

А B с 1 2 3 4 5 6 7 8 Loan amount Term in years APR compounded semiannually Quarterly interest rate No. of quarterly payments Quaterly payment amount $60,000.00 15 9.10% 2.25% 60 $1,831.99 a. Interest component of Payment 13 $1,202.27 9 10 11 12 b. Principal component of Payment 52 $1,499.56 c. Total interest in payments 39 to 50 $6,709.58 13 14 d. Reduction in principal in Year 4 $2,605.15 15 16 17 18

Cell reference -

А B С 1 2 3 4 5 6 7 8 9 10 Loan amount Term in years APR compounded semiannually Quarterly interest rate No. of quarterly payments Quaterly payment amount 60000 15 0.091 =(1+C4/2)^(1/2)-1 =C3*4 =PMT(C5,C6,-C2,0) a. Interest component of Payment 13 =IPMT(C5,13,C6,-C2,,0) 11 b. Principal component of Payment 52 =PPMT(C5,52,C6,-C2,,0) 12 c. 13 14 Total interest in payments 39 to 50 =-CUMIPMT(C5, C6,C2,39,50,0) d. Reduction in principal in Year 4 =-CUMPRINC(C5,C6,C2,13,16,0) 15 16 17

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.