10. Curt, the manager and bass player for a central Illinois country/rock group, wants to buy some new amplifying equipment. A bank is willing to lend $14,000 toward the purchase of the $18,500 worth of needed equipment. However, because peoples tastes in music can change over time the loan officer views the loan as a fairly risky one, and thus quotes an 11.5% annual interest rate.

a. If the loan is to be fully amortized, with equal end-of-year annual payments over 6 years, what should the amount of each payment be? What if beginning-of-year payments instead were to be made?

[PARTS B AND C MAY BE OF INTEREST IF YOU LIKE WORKING THE NUMBERS, BUT ARE NOT ESSENTIAL TO OUR COVERAGE IF YOU WANT TO SKIP THEM.] b. Assume that Curt inherits some money at the end of year 4, and wants to use it to pay off the loans remaining balance. If year-end payments are made, how much of the $14,000 borrowed will still be owed at the end of year 4?

c. Now assume that Curt has saved $3,000 by the end of year 2, and wants to use it to pay off enough of the loans principal so that he can make the remaining payments over a 3-year period instead of 4 years. If year-end payments are made, how much (in addition to the regular payment) should he pay the bank at the end of year 2?