How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Dr WLS Your Own Question

Dr WLS
Dr WLS, PhD in physics and engineering
Category: Homework
Satisfied Customers: 483
Experience:  Online tutor since '94 in science, math & general topics
77828
Type Your Homework Question Here...
Dr WLS is online now
A new question is answered every 9 seconds

future payment

Customer Question

xyz outpatient radiology center has a balloon pay off on their loan of 1,500,000 at the end of 8 years. How much would xyz have to deposit at the beginning of each year to make the balloon paymaent on time if their deposit earned 7% compounded annually? what if it were compounded semi-annually? Would the payment change if the payment wer made at the beginning of the year insted of at the end? what would it be compounded annually? semi-annually? calculate any differences ther may be
Submitted: 11 years ago.
Category: Homework
Expert:  Dr WLS replied 11 years ago.

Are you assuming that, when payments are made at the beginning of each year, there are a total of nine payments made? (The last payment would be made on the date the balloon payment was due.) With payments made at the end of the year, there would only be eight payments. This, as well as the extra year of earning interest on each deposit when paid at the beginning, makes a big difference in the answer.


The normal use of the term "balloon payment" refers to a situation where a large portion of the original principal is paid off at the end of a loan payment period. Some such loans are "interest-only" loans, with the full iniital balance paid off at the end. Since you provided no information on how much of the initial balance is paid off at the end, I assume you are amortizing the loan with equal annual payments. Please let me know if that is not the case.

Expert:  Dr WLS replied 11 years ago.

Here is how to do the nine-payment, annual compounding, case, with payment P at the beginning of each year.


P [ (1.07)^8 + (1.07)^7 + (1.07)^6 + (1.07)^5 + (1.07)^4 +(1.07)^3 +(1.07^2 + (1.07)1 + 1] = $1,500,000


P * [ 1.71819 + 1.60578 + 1.50073 + 1.40255 + 1.31080 + 1.25504 + 1.14490 + 1.07000 + 1.0000] = $1,500,000


12.31209 P = $1,500,000


P = $121,831.47


With payment at the end of each year and annual compounding, there are 8 payments P due and


P [(1.07)^7 + (1.07)^6 + (1.07)^5 + (1.07)^4 +(1.07)^3 +(1.07^2 + (1.07)^1 + 1] = $1,500,000


P* 10.59390 = $1,500,000


P = $141,590.92


The semiannual-compounding case works similarly, but I'd like to wait to hear from you before doing the numbers. Receiving semiannual componding at 7% annual rate is the equivalent of receiving (1.035)^2 = 1.07123 of your money at the end of a year, or 7.123% annual interest compounded annually.

Customer: replied 11 years ago.
Did you use the FV=Pv * (1+i)n(power)
FV
pv---
(1+i)n

tHE ANSWER i GOT FOR THE FIRST PART WAS 136,000.00
iI<m not understading this one
This is how I set it up for the first part
Fv= 1,5000,000 (1.07)8 annually at 8years

Semi-annually would be 16 years
Customer: replied 11 years ago.
for the eight payments do you have to do them seperatley or was this done all together as one
Expert:  Dr WLS replied 11 years ago.

No, I did not use a formula such as you described. I am not sure what you mean by Fv and Pv.


If you mean


(Final Value) = (1+i)^8 * (Initial investment),


that would apply to a case where you deposit the money once, at the beginning and let it grow, with no annual payments. I treated a case where you make equal annual payments that result in full payoff at the end of the 8 years.


Unless I get a clearer statement of the problem, including whether there is an extra payment at the end (when you pay at the beginning of each year) and how much the final balloon payment amount is, I can't be sure we are talking about the same problem.


<<for the eight payments do you have to do them seperatley or was this done all together as one >>


In the example I showed, I added up the compound balances resulting from each annual payment. That is why I had to add a sum of terms. You could consider that as "doing them separately".


Expert:  Dr WLS replied 11 years ago.

If you got 136,000 for the first part, approximately, you were probably assuming eight payments, with no payment at the end of the final year. In that case, if you make the payments at the beginning of each year,


P [ (1.07)^8 + (1.07)^7 + (1.07)^6 + (1.07)^5 + (1.07)^4 +(1.07)^3 +(1.07^2 + (1.07)^1 ] = $1,500,000


P * [ 1.71819 + 1.60578 + 1.50073 + 1.40255 + 1.31080 + 1.25504 + 1.14490 + 1.07000] = $1,500,000


10.97799 P = $1,500,000


P = $136,637.05


With eight payments made at the end of each year, the annual payment P required is the $141,590.92 amount I derived earlier. The difference is $4953.87 more to be paid per year if one waits until the end of the year to make a payment.


If you think that's the way the problem should be interpreted, let me know and I will do the semiannual compounding case. The payments will be less in that case.


By the way, this is what would be alled a "sinking fund" situation, not a balloon payment. The payments indicated above would have to be made in addition to equal "interest only" annual payments of $105,000, in order to have $1,500,000 available in the sinking fund at the end of the eight years, to pay off the principal of the original loan.

Customer: replied 11 years ago.
FV is future Value = Present Value (1 + i) n
i is the annual interest rate at which the money is invested and
FV = PV (l + i) mn
where m is the number of times the money is compounded each year
These are the formulas the book uses
How much would they have to deposit at the beginning of each year if they earned 7% interest compuonded annually?
and compuneded semi anually?
Customer: replied 11 years ago.
Reply to Dr WLS's Post: tHIS IS THE FORMULAS THAT IS USED IN THE BOOK TO DO THE PROBLEM
Expert:  Dr WLS replied 11 years ago.
THIS ANSWER IS LOCKED!

You need to spend $3 to view this post. Add Funds to your account and buy credits.
Dr WLS, PhD in physics and engineering
Category: Homework
Satisfied Customers: 483
Experience: Online tutor since '94 in science, math & general topics
Dr WLS and 3 other Homework Specialists are ready to help you
Customer: replied 11 years ago.
Thank you I will keep you in mind when Ihave to retake this class.
Customer: replied 11 years ago.
You have been paid this was verified through info at customer service

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
< Previous | Next >
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
  • I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin Kernersville, NC
  • Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther Woodstock, NY
  • Thank you so much for taking your time and knowledge to support my concerns. Not only did you answer my questions, you even took it a step further with replying with more pertinent information I needed to know. Robin Elkton, Maryland
  • He answered my question promptly and gave me accurate, detailed information. If all of your experts are half as good, you have a great thing going here. Diane Dallas, TX
 
 
 

Meet The Experts:

 
 
 
  • LogicPro

    LogicPro

    Engineer

    Satisfied Customers:

    4925
    Expert in Java C++ C C# VB Javascript Design SQL HTML
< Last | Next >
  • http://ww2.justanswer.com/uploads/ComputersGuru/2010-02-13_051118_Photo41.JPG LogicPro's Avatar

    LogicPro

    Engineer

    Satisfied Customers:

    4925
    Expert in Java C++ C C# VB Javascript Design SQL HTML
  • http://ww2.justanswer.com/uploads/BU/BusinessTutor/2012-2-2_115741_Kouki2.64x64.jpg Manal Elkhoshkhany's Avatar

    Manal Elkhoshkhany

    Tutor

    Satisfied Customers:

    4538
    More than 5000 online tutoring sessions.
  • http://ww2.justanswer.com/uploads/LI/lindaus/2012-6-10_04811_IMG20120609164157.64x64.jpg Linda_us's Avatar

    Linda_us

    Finance, Accounts & Homework Tutor

    Satisfied Customers:

    3138
    Post Graduate Diploma in Management (MBA)
  • http://ww2.justanswer.com/uploads/chooser77/2009-08-18_162025_Chris.jpg Chris M.'s Avatar

    Chris M.

    M.S.W. Social Work

    Satisfied Customers:

    2602
    Master's Degree, strong math and writing skills, experience in one-on-one tutoring (college English)
  • http://ww2.justanswer.com/uploads/JawaadAhmed/2009-6-27_12137_SIs_SHadi.jpg F. Naz's Avatar

    F. Naz

    Chartered Accountant

    Satisfied Customers:

    2126
    Experience with chartered accountancy
  • http://ww2.justanswer.com/uploads/JK/jkcpa/2011-1-16_182614_jkcpa.64x64.jpg Bizhelp's Avatar

    Bizhelp

    CPA

    Satisfied Customers:

    1887
    Bachelors Degree and CPA with Accounting work experience
  • http://ww2.justanswer.com/uploads/avremote/photoa.jpg Seanna's Avatar

    Seanna

    Tutor

    Satisfied Customers:

    1781
    3,000+ satisfied customers, all topics, A+ work
 
 
 

Related Homework Questions