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Question

You have just received a loan in the amount of $10,000 from a bank. The loan term is 5 years. Answer the following questions independently. For each question, you can use a table similar to the one presented in the class to show the details of your calculations. In all calculations, use 6 digits after the decimal point. 1- Considering a 5% per year simple interest, how much do you need to pay at the end of year 5 if no payment is made before the term of the loan expires? What would be your total payment? 2- Assume a 5% per year compound interest rate. What are your end-of-year payments for each year if you pay the interest and 20% of the principal each year? What would be your total payment? 3- One of the conditions of your loan states that the compound interest rate of 5% per year increases to a compound rate of 20% per year for the remaining time of the loan when you miss a payment. The payment plan is to pay the interest each year and pay the principal in the end (end of year 5). Suppose you make your payments for year 1 and year 2 as planned, but you miss the payment at the end of year 3. What will be your payments for years 4 and 5? What would be your total payment? 4- With a 5% per year compound interest rate, suppose you choose to make $2,330 at the end of each year (1,2,3,4,5). Have you overpaid your loan? If yes, how much will the bank owe you? What would be your total payment?