a.

The balance of the loan is the present value of the future loan payments. The
annual loan payments form an annuity of equal amount.
Present value of annuity of equal amount = Amount * {1 (1+r) -n}/r
Loan amount = $60,000 - $15,000 = $45,000
r = 9% = 0.09
n = 6 years
Hence,
$45,000 = Loan payment * (1-1.09-6)/0.09 = Loan payment * 4.4859
Loan payment = $45,000/4.48589 = $10,031.39
b.
Beginning loan
balance

Year

Interest @ 9%

Principal
part

Loan payment

Ending loan
balance

$ 45,000

$ 4,050

$ 10,031

$ 5,981

$ 39,019

$ 39,019

$ 3,512

$ 10,031

$ 6,520

$ 32,499

$ 32,499

$ 2,925

$ 10,031

$ 7,106

$ 25,392

$ 25,392

$ 2,285

$ 10,031

$ 7,746

$ 17,646

$ 17,646

$ 1,588

$ 10,031

$ 8,443

$ 9,203

$ 9,203

$ 828

$ 10,031

$ 9,203

$0

Exercise B
Future value at the end of deposit period = Amount deposited * (1+r) n
r = Periodical interest rate = Interest rate/Compounding periods per year = i/m
n = Total compounding periods = Deposit years * Compounding periods per year
= n*m

Accou
nt

amount
deposited

Annual
interest
rate (i)

Compoundi
ng Period
(m)

deposite
d period
(y)

Compoundi
ng periods

Periodic
al
interest
rate

Future
value
factor

n = y*m

r = i/m

(1+r)^
n

$ 1,000

10%

12

10

120

0.01

95,000

12%

0.12

8,000

12%

0.06

2.70
70
1.12
00
1.26
25

Future value
Amount
deposited*Futur
e value factor

$ 2,707.04
$
106,400.00
$ 10,099.82

120,000

8%

0.03

30,000

10%

24

0.02

15,000

12%

12

0.03

1.17
11
1.48
69
1.42
58

$
140,526.43
$ 44,607.44
$ 21,386.41