2. Problem 5.22 Click here to read the eBook: Amortized Loans LOAN AMORTIZATION Jan sold her house on December...

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2.  Problem 5.22
Click here to read the eBook: Amortized Loans
LOAN AMORTIZATION
Jan sold her house on December 31 and took a $20,000 mortgage aspart of the payment. The 10-year mortgage has a 10% nominalinterest rate, but it calls for semiannual payments beginning nextJune 30. Next year Jan must report on Schedule B of her IRS Form1040 the amount of interest that was included in the two paymentsshe received during the year.
a. What is the dollar amount of each payment Jan receives? Roundyour answer to the nearest cent.
$
b. How much interest was included in the first payment? Roundyour answer to the nearest cent.
$
How much repayment of principal was included? Round your answerto the nearest cent.
$
How do these values change for the second payment?
-Select-IIIIIIIVVItem 4
The portion of the payment that is applied to interestdeclines, while the portion of the payment that is applied toprincipal increases.
The portion of the payment that is applied to interestincreases, while the portion of the payment that is applied toprincipal decreases.
The portion of the payment that is applied to interest and theportion of the payment that is applied to principal remains thesame throughout the life of the loan.
The portion of the payment that is applied to interestdeclines, while the portion of the payment that is applied toprincipal also declines.
The portion of the payment that is applied to interestincreases, while the portion of the payment that is applied toprincipal also increases.
c. How much interest must Jan report on Schedule B for the firstyear? Round your answer to the nearest cent.
$
Will her interest income be the same next year?
-Select-Her interest income will increase in each successiveyear.Her interest income will remain the same in each successiveyear.She will not receive interest income, only a return ofcapital.Her interest income will decline in each successiveyear.She will receive interest only when the mortgage is paid offin 10 years.Item 6
d. If the payments are constant, why does the amount of interestincome change over time?
-Select-IIIIIIIVVItem 7
As the loan is amortized (paid off), the beginning balance,hence the interest charge, increases and the repayment of principalincreases.
As the loan is amortized (paid off), the beginning balance,hence the interest charge, declines and the repayment of principalincreases.
As the loan is amortized (paid off), the beginning balance,hence the interest charge, declines and the repayment of principaldeclines.
As the loan is amortized (paid off), the beginning balance,hence the interest charge, increases and the repayment of principaldeclines.
As the loan is amortized (paid off), the beginning balancedeclines, but the interest charge and the repayment of principalremain the same.

Answer & Explanation Solved by verified expert

3.9 Ratings (626 Votes)

1.
$1,604.85

2.
$1,000.00

3.
$604.85

4.
The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal increases.

5.
$1,969.76

6.
Her interest income will decline in each successive year.

7.
As the loan is amortized (paid off), the beginning balance, hence the interest charge, declines and the repayment of principal increases.

Payment	Loan beginning balance	Payment	Interest payment	Principal payment	Loan ending balance
1	20000	$1,604.85	$1,000.00	$604.85	$19,395.15
2	$19,395.15	$1,604.85	$969.76	$635.09	$18,760.05
3	$18,760.05	$1,604.85	$938.00	$666.85	$18,093.20
4	$18,093.20	$1,604.85	$904.66	$700.19	$17,393.01
5	$17,393.01	$1,604.85	$869.65	$735.20	$16,657.81
6	$16,657.81	$1,604.85	$832.89	$771.96	$15,885.85
7	$15,885.85	$1,604.85	$794.29	$810.56	$15,075.29
8	$15,075.29	$1,604.85	$753.76	$851.09	$14,224.20
9	$14,224.20	$1,604.85	$711.21	$893.64	$13,330.56
10	$13,330.56	$1,604.85	$666.53	$938.32	$12,392.24
11	$12,392.24	$1,604.85	$619.61	$985.24	$11,407.00
12	$11,407.00	$1,604.85	$570.35	$1,034.50	$10,372.50
13	$10,372.50	$1,604.85	$518.62	$1,086.23	$9,286.27
14	$9,286.27	$1,604.85	$464.31	$1,140.54	$8,145.73
15	$8,145.73	$1,604.85	$407.29	$1,197.57	$6,948.17
16	$6,948.17	$1,604.85	$347.41	$1,257.44	$5,690.72
17	$5,690.72	$1,604.85	$284.54	$1,320.32	$4,370.41
18	$4,370.41	$1,604.85	$218.52	$1,386.33	$2,984.08
19	$2,984.08	$1,604.85	$149.20	$1,455.65	$1,528.43
20	$1,528.43	$1,604.85	$76.42	$1,528.43	$0.00

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2. Problem 5.22Click here to read the eBook: Amortized LoansLOAN AMORTIZATIONJan sold her house on December 31 and took a $20,000 mortgage aspart of the payment. The 10-year mortgage has a 10% nominalinterest rate, but it calls for semiannual payments beginning nextJune 30. Next year Jan must report on Schedule B of her IRS Form1040 the amount of interest that was included in the two paymentsshe received during the year.a. What is the dollar amount of each payment Jan receives? Roundyour answer to the nearest cent.$ b. How much interest was included in the first payment? Roundyour answer to the nearest cent.$ How much repayment of principal was included? Round your answerto the nearest cent.$ How do these values change for the second payment?-Select-IIIIIIIVVItem 4The portion of the payment that is applied to interestdeclines, while the portion of the payment that is applied toprincipal increases.The portion of the payment that is applied to interestincreases, while the portion of the payment that is applied toprincipal decreases.The portion of the payment that is applied to interest and theportion of the payment that is applied to principal remains thesame throughout the life of the loan.The portion of the payment that is applied to interestdeclines, while the portion of the payment that is applied toprincipal also declines.The portion of the payment that is applied to interestincreases, while the portion of the payment that is applied toprincipal also increases.c. How much interest must Jan report on Schedule B for the firstyear? Round your answer to the nearest cent.$ Will her interest income be the same next year?-Select-Her interest income will increase in each successiveyear.Her interest income will remain the same in each successiveyear.She will not receive interest income, only a return ofcapital.Her interest income will decline in each successiveyear.She will receive interest only when the mortgage is paid offin 10 years.Item 6d. If the payments are constant, why does the amount of interestincome change over time?-Select-IIIIIIIVVItem 7As the loan is amortized (paid off), the beginning balance,hence the interest charge, increases and the repayment of principalincreases.As the loan is amortized (paid off), the beginning balance,hence the interest charge, declines and the repayment of principalincreases.As the loan is amortized (paid off), the beginning balance,hence the interest charge, declines and the repayment of principaldeclines.As the loan is amortized (paid off), the beginning balance,hence the interest charge, increases and the repayment of principaldeclines.As the loan is amortized (paid off), the beginning balancedeclines, but the interest charge and the repayment of principalremain the same.