Amortization Help

Mirrored

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Hello, I am currently taking a course in creating and solving problems for financial situations and I'm currently stuck on K and L of the following question.

The Mackenzie’s also bought a business for $90,000. They borrowed the money to buy the business at 6.9% compounded semi-annually and are to repay the debt by making quarterly payments of $3645.

k. How much interest do they save by making the lump sum payment?
l. If Bob and Angelique had made the lump sum payment at the end of the second year instead of the end of the fourth year, how much more money could they save?

If anyone could help solve them I'd greatly appreciate it!!
 

Subhotosh Khan

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Hello, I am currently taking a course in creating and solving problems for financial situations and I'm currently stuck on K and L of the following question.

The Mackenzie’s also bought a business for $90,000. They borrowed the money to buy the business at 6.9% compounded semi-annually and are to repay the debt by making quarterly payments of $3645.

k. How much interest do they save by making the lump sum payment?
l. If Bob and Angelique had made the lump sum payment at the end of the second year instead of the end of the fourth year, how much more money could they save?

If anyone could help solve them I'd greatly appreciate it!!
Please show us what you have tried and exactly where you are stuck.

Please follow the rules of posting in this forum, as enunciated at:


Please share your work/thoughts about this problem.
 

tkhunny

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Hello, I am currently taking a course in creating and solving problems for financial situations and I'm currently stuck on K and L of the following question.

The Mackenzie’s also bought a business for $90,000. They borrowed the money to buy the business at 6.9% compounded semi-annually and are to repay the debt by making quarterly payments of $3645.

k. How much interest do they save by making the lump sum payment?
l. If Bob and Angelique had made the lump sum payment at the end of the second year instead of the end of the fourth year, how much more money could they save?

If anyone could help solve them I'd greatly appreciate it!!
Get your interest accumulation right. Semi-annual compounding and quarterly payments may not be obvious.
Draw a time diagram.
What "lump sum payment"?
 

Mirrored

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This assignment was filled in on an excel worksheet and the problem I’m having with K and L is that I’m not entirely sure on what the equation would be or how to get to the answer. The lump some payment refers to a payment of $10000 dollars. (My apologies I forgot to add that in the original message)

This is what I tried so far:20FC6179-6BE6-4669-96E1-7D64E322B3E7.jpeg
 

tkhunny

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Wow! Classic case of SO MUCH spreadsheet that one cannot possibly have any understanding of what is going on. I do hope your grade isn't based on understanding this bloated spreadsheet.

Time Map:
Loan: PV = 90000
Payoff PV w/o Lump = 90000 = 3645(v^1 + v^2 + v^3 + ... + v^n) -- We'll need "n", the total number of regular quarterly payments?
Payoff PV w/4yr Lump = 90000 = 10000v^16 + 3645(v^1 + v^2 + v^3 + ... + v^m) -- We'll need "m", the total number of regular quarterly payments?
Payoff PV w/2yr Lump = 90000 = 10000v^8 + 3645(v^1 + v^2 + v^3 + ... + v^q) -- We'll need "q", the total number of regular quarterly payments?
Note: m and q should be 3-ish less than n. Why?
Note: n, m, and q could be non-integer.

1) I'm going to assume you know how to add up a geometric series. Please demonstrate.
2) I'm going to make you tell me the right value for "v". It has something to do with Quarterly, but not everything, since compounding is Semi-Annual.
3) That's the information we need, but we still can't answer the "how much interest" questions. It's not far from where we are.
 
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