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Jan sold her house on December 31 and took a $15,000 mortgage as part of the...

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Finance

Jan sold her house on December 31 and took a $15,000 mortgage aspart of the payment. The 10-year mortgage has a 12% 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? Do not roundintermediate calculations. Round your answer to the nearestcent.

$ _________  

How do these values change for the second payment?

  1. The portion of the payment that is applied to interestdeclines, while the portion of the payment that is applied toprincipal increases.
  2. The portion of the payment that is applied to interestincreases, while the portion of the payment that is applied toprincipal decreases.
  3. 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.
  4. The portion of the payment that is applied to interestdeclines, while the portion of the payment that is applied toprincipal also declines.
  5. 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? Do not round intermediate calculations. Round your answer tothe nearest cent.

$ _________

Will her interest income be the same next year?
a) Her interest income will increase in each successive year.

b) Her interest income will remain the same in each successiveyear.

c) She will not receive interest income, only a return ofcapital.

d) Her interest income will decline in each successive year.

e) She will receive interest only when the mortgage is paid offin 10 years.

d. If the payments are constant, why does the amount of interestincome change over time?

  1. As the loan is amortized (paid off), the beginning balance,hence the interest charge, increases and the repayment of principalincreases.
  2. As the loan is amortized (paid off), the beginning balance,hence the interest charge, declines and the repayment of principalincreases.
  3. As the loan is amortized (paid off), the beginning balance,hence the interest charge, declines and the repayment of principaldeclines.
  4. As the loan is amortized (paid off), the beginning balance,hence the interest charge, increases and the repayment of principaldeclines.
  5. 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
4.1 Ratings (584 Votes)
Formula for Equal monthly payment can be used to compute semiannual payment as EMI P r 1 r n 1 r n 1 Where P Principal 15000 r rate of interest 12 pa or 0122 006 semiannually n No of periods 10 x 2 20 periods Equal semiannual payment 15000 x 006 x 1 00620 1 006 20 1 15000 x 006 x 10620 106 20 1 15000 x 006 x 320713547221285 320713547221285 1 15000 x 006 x 320713547221285220713547221285 15000 x 006 x 145307594961419    See Answer
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Transcribed Image Text

Jan sold her house on December 31 and took a $15,000 mortgage aspart of the payment. The 10-year mortgage has a 12% nominalinterest rate, but it calls for semiannual payments beginning nextJune 30. Next year Jan must report on Schedule B of her IRS Form1040 the amount of interest that was included in the two paymentsshe received during the year.a. What is the dollar amount of each payment Jan receives? Roundyour answer to the nearest cent.$ ________b. How much interest was included in the first payment? Roundyour answer to the nearest cent.$ ________How much repayment of principal was included? Do not roundintermediate calculations. Round your answer to the nearestcent.$ _________  How do these values change for the second payment?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? Do not round intermediate calculations. Round your answer tothe nearest cent.$ _________Will her interest income be the same next year?a) Her interest income will increase in each successive year.b) Her interest income will remain the same in each successiveyear.c) She will not receive interest income, only a return ofcapital.d) Her interest income will decline in each successive year.e) She will receive interest only when the mortgage is paid offin 10 years.d. If the payments are constant, why does the amount of interestincome change over time?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.

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