Question

A student borrows $5,000 at 12% nominal rate of interest. The loan is to be paid back in semi-annual payments over the next 4 years. a: What is the semi-annual payment? b: What is the balance of the loan after the student pays the 4th payment c: If payments are made according to the loan schedule, what will be the total interest paid after the student makes the last payment? d: If initially the student had been able to negotiate a 10% nominal rate of interest with semi-annual payments for 4 years, how much interest would have been saved?

4. A manufacturing company's operating expense is $12,000/year starting EOY 1 and continuing for 9 additional years. Revenue is projected to be $10,000/year starting EOY 1 and continuing for 4 additional years. After that, revenue is expected to increase to $15,000/year and remain constant for the next 4 years. Then nominal rate of interest for all years is 10%.
a: Draw a cash flow diagram from the company's perspective.

b: Based on the present work of these cash flows (equivalent of these cash flows at time =0), was the company profitable?

Answer 1

As per HomeworkLib guidelines i answered only First question

1) Semi-annual payment = 5000(A/P, 6%, 8) = $805.18

2) Balance after 4^th payment = 805(P/A, 6%, 4) = $2,790

3) Total interest = 805.18*8 – 5000 = $1441.44

4) Semi-annual payment = 5000(A/P, 5%, 8) = $773.61. Total interest = 773.61*8 – 5000 = $1188.87. Interest saved = $1441.44 - $1188.87 = $252.57