The Mathematics of Money

Copyright © 2008, The McGraw-Hill Companies, Inc.

2. Calculate the quarterly payment for a loan of $28,300 at 7.25% for 10 years. Construct an amortization table for the
   fi rst four quarterly payments.

Quarter

Payment

Amount

Interest

Amount

Principal

Amount

Remaining

Balance

1

2

3

4

3. Suppose that you borrow $8,000 to pay to put a new roof on your house. The loan term is 6 years, payments are
   monthly, and the interest rate is 8.14%. Find the monthly payment on this loan, and determine how much of your fi rst
   monthly payment goes toward interest and how much goes toward reducing the balance you owe.


4. Toran just graduated from college, and he owes $17,035 on his student loans. He is scheduled to make equal monthly
   payments intended to pay off the loan over 20 years. The interest rate is 5.75%. Construct an amortization table for his fi rst
   three monthly payments.


5. Albert has a credit card on which he owes a balance of $3,765.42. The interest rate is 18.99%. His minimum monthly
   payment is $62.50, but Albert is planning on paying $250 each month to get the card paid off more quickly. Assume
   he makes no further charges to this card.
   a. If he pays the minimum this month, how much will go to interest and how much will go toward principal?
   b. If he pays $250 as he is planning on, how much will go to interest and how much will go to principal?
   c. Make an educated guess about how long it will take him to pay off his balance if he continues to pay $62.50
   per month. Make an educated guess about how long it will take him if he continues to pay $250 per month.
   (Note: You do not need to try to actually calculate these values; you only need to try to make a reasonable guess.)
   The actual times required are given in exercise answers in the back of the book.

B. The Remaining Balance on a Loan

6. My mortgage payment is $734.55 and the interest rate is 6%. I have made all of my payments as scheduled, and
   I have 25 years of monthly payments left until the loan is paid off. How much do I owe today?


7. Suppose that you have 20 payments left on a personal loan. Your monthly payment is $188.75, and the interest rate is
   8.91%. If you wanted to pay off the loan in its entirety today, how much would you need to do it?


8. Sylvain borrowed $200,000 at 7.39% for 10 years for start-up costs for his new business. Assume he makes all of his
   monthly payments as scheduled.
   (a) How much of his fi rst payment will go toward interest, and how much will go toward principal?
   (b) How much of his 37th payment will go toward interest versus principal? (Hint: First, fi nd how much he owes when
   he has 84 payments left to make).
   (c) How much of his last payment will go to interest versus principal?

Exercises 4.5 189