Asked by Leryia Hughes on May 18, 2024
Verified
Metro Construction received $60,000 in vendor financing at 10.5% compounded semi-annually for the purchase of a loader. The contract requires semi-annual payments of $10,000 until the debt is paid off. Suppose that the loan permits an additional prepayment of principal on any scheduled payment date. Prepare another amortization schedule that reflects a prepayment of $5,000 with the third scheduled payment. How much interest is saved as a result of the prepayment?
Compounded Semi-annually
Refers to the process of calculating interest on both the initial principal and the accumulated interest from previous periods twice a year.
Amortization Schedule
A table detailing each periodic payment on an amortizing loan (typically a mortgage), as well as how much of each payment is interest versus principal and the balance remaining after each payment.
- Formulate and interpret schedules of amortization.
- Evaluate the benefits of prepayments or extra payments on loans and mortgages.
Verified Answer
VM
Learning Objectives
- Formulate and interpret schedules of amortization.
- Evaluate the benefits of prepayments or extra payments on loans and mortgages.