Question: A farmer is considering borrowing money from a bank. Given the following information: Initial loan amount is $88,000. The loan will be fully amortized in

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

Initial loan amount is $88,000.

The loan will be fully amortized in 3 years at 12%.

Marginal tax rate is 20%.

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

a. $8,916.67

b. $5,944.44

c. $9,288.19

d. $7,430.55

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

a. $29,208.16

b. $23,796.47

c. $8,311.81

d. None of the answers are correct

(iii) What is the loan balance at the end of 2nd year?

a. $75,288.19

b. $32,713.13

c. $43,770.51

d. $44,162.40

iv) What is the tax saving in the 2nd year?

a. $1,783.33

b. $1,486.11

c. $1,857.64

d. None of the answers are correct

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