Question

2-2 You borrow $20,000 at an annual interest rate of 8%. You will pay the loan back in two equal payments at the end of year 1 and year 4. a. Calculate the amount to be paid each year using the factor tables. b. Draw the fully labeled cash flow diagram. c. Complete the following table: BOY alanceamount BOY+Interest)Payment Interest Total Balance f) 3 4

Answer 1

a)

Installment amount = A

20000 = A/1.08 + A/1.084

A = $ 12041.26

Cash flows ($) 5000 Cash flows Is) 5000 15000 Yew

I nterest amount = BOY balance x 8%

EOY balance = Total - EOY payment