Question: A farmer is considering borrowing money from a bank. Given the following information : Initial loan amount is $95,000. The loan will be fully amortized

A farmer is considering borrowing money from a bank. Given the following information :

  • Initial loan amount is $95,000.
  • The loan will be fully amortized in 3 years at 12%.
  • Marginal tax rate is 25%.

(i) What is the interest payment in the 1st year?

a. $15,200.00 b. $8,550.00

c. $14,250.00 d. $11,400.00

(ii) What is the interest payment in the 2nd year?

a. $8,021.62 b. $10,027.03

c. $10,695.50 d. None of the answers are correct

(iii) What is the total interest payment for this loan?

a. $23,659.46 b. $30,133.33

c. $18,804.05 d. None of the answers are correct

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