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3. (20%) A company borrowed $200,000 at an interest rate of 12% compounded annually. The company plans to pay off the loan over the next
3. (20%) A company borrowed $200,000 at an interest rate of 12% compounded annually. The company plans to pay off the loan over the next 6 years, with installments at the end of each year. (a) If the company plans to pay $30,000 each year for the first 5 years, what would be the last payment that will pay off the loan at year 6? (b) If the loan was repaid in equal end-of-year payments over 6 years, how much would be each payment? (c) Suppose the company made the first three years' payments according to the schedule in part (a). How much does the company still owe to the lender right after the third year's payment? (d) Suppose the company is considering making more frequent, say monthly, payments with the hope of paying less in interest. Should the company do it? Why or why not? 3. (20%) A company borrowed $200,000 at an interest rate of 12% compounded annually. The company plans to pay off the loan over the next 6 years, with installments at the end of each year. (a) If the company plans to pay $30,000 each year for the first 5 years, what would be the last payment that will pay off the loan at year 6? (b) If the loan was repaid in equal end-of-year payments over 6 years, how much would be each payment? (c) Suppose the company made the first three years' payments according to the schedule in part (a). How much does the company still owe to the lender right after the third year's payment? (d) Suppose the company is considering making more frequent, say monthly, payments with the hope of paying less in interest. Should the company do it? Why or why not
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