Question No.

1
Amortization and yearly payments of the loan are shown below
calculated with the following formula:

FVAn = R (FVIFA i%,n)

FVAn = 200,000 (94.4608)

FVA30 = $15,967/per year

Amortization is shown in following table (Yearly)

Payments Yearly Total Principal Paid Interest Paid Balance
Year 1 (1-12) $15,967.26 $2,031.62 $13,935.64 $197,968.38
Year 2 (13-24) $15,967.26 $2,178.49 $13,788.77 $195,789.89
Year 3 (25-36) $15,967.26 $2,335.97 $13,631.29 $193,453.93
Year 4 (37-48) $15,967.26 $2,504.84 $13,462.42 $190,949.09
Year 5 (49-60) $15,967.26 $2,685.91 $13,281.35 $188,263.18
Year 6 (61-72) $15,967.26 $2,880.08 $13,087.18 $185,383.10
Year 7 (73-84) $15,967.26 $3,088.28 $12,878.98 $182,294.83
Year 8 (85-96) $15,967.26 $3,311.53 $12,655.73 $178,983.30
Year 9 (97-108) $15,967.26 $3,550.92 $12,416.34 $175,432.38
Year 10 (109-120) $15,967.26 $3,807.61 $12,159.65 $171,624.77
Year 11 (121-132) $15,967.26 $4,082.87 $11,884.39 $167,541.90
Year 12 (133-144) $15,967.26 $4,378.02 $11,589.24 $163,163.88
Year 13 (145-156) $15,967.26 $4,694.51 $11,272.75 $158,469.38
Year 14 (157-168) $15,967.26 $5,033.87 $10,933.39 $153,435.50
Year 15 (169-180) $15,967.26 $5,397.77 $10,569.49 $148,037.73
Year 16 (181-192) $15,967.26 $5,787.98 $10,179.28 $142,249.76
Year 17 (193-204) $15,967.26 $6,206.39 $9,760.87 $136,043.37
Year 18 (205-216) $15,967.26 $6,655.05 $9,312.21 $129,388.32
Year 19 (217-228) $15,967.26 $7,136.14 $8,831.12 $122,252.17
Year 20 (229-240) $15,967.26 $7,652.02 $8,315.24 $114,600.16
Year 21 (241-252) $15,967.26 $8,205.18 $7,762.08 $106,394.98
Year 22 (253-264) $15,967.26 $8,798.33 $7,168.93 $97,596.64
Year 23 (265-276) $15,967.26 $9,434.37 $6,532.89 $88,162.27
Year 24 (277-288) $15,967.26 $10,116.38 $5,850.88 $78,045.90
Year 25 (289-300) $15,967.26 $10,847.69 $5,119.57 $67,198.20
Year 26 (301-312) $15,967.26 $11,631.87 $4,335.39 $55,566.33
Year 27 (313-324) $15,967.26 $12,472.74 $3,494.52 $43,093.59
Year 28 (325-336) $15,967.26 $13,374.40 $2,592.86 $29,719.19
Year 29 (337-348) $15,967.26 $14,341.23 $1,626.03 $15,377.96
Year 30 (349-360) $15,967.26 $15,377.96 $589.30 $0.00
Totals $479,017.80 $200,000.00 $279,017.80
A. Yes all the money goes to interest but interest not payoff. It is loss for
home owner.Total interest amount in this loan is $279,017.80. It is
much time greater than principle amount. Principal amount is only
2031.62.
Total Amount of Installments Principal Amount = Interest
Amount
$479,017.80 $200,000 = $279,017.80
Interest Amount = $279,017.80
We can reduce interest payment on loan by follow the given
instructions.

Repay loans with savings

It almost always makes sense to repay any outstanding loans using your
savings, provided the early repayment charges are not too high. And if you
have savings to use, always pay off your most expensive loan debts first.

Get a Job Instead of a Loan

Getting a part-time job while youre at IU Bloomington is a really good idea.
Not only will it give you some good experience, but it could give you a head
start on paying off loans after school.
Example: If I get a part-time job so that instead of borrowing $3,500 in loans,
I only had to borrow $2,000. I pay $50 a month after graduation, and can pay
all payments three years earlier.
Use unexpected income
Send any unexpected windfalls straight to your mortgage company. This
includes holiday bonuses, tax returns and credit card rewards. Using this
money to pay off your mortgage can reduce the term of your loan without
cutting into your regular monthly budget.
Round up
Rounding up is an easy pay-off trick that can add up fast. When budgeting for
your mortgage payment, round up to the next highest $100 amount. Pay
$800 instead of $743, or $900 rather than $860. The extra amount you pay
each month can help reduce the term of your mortgage significantly over a
20- or 30-year period.
Pay off lump sums off your loan
If youve saved up or received a lump sum, using this to reduce the outstanding
balance on your home loan could reduce the time it takes to pay off the loan and
reduce your overall interest costs.
Example
Paying $10,000 off a $250,000 loan could shorten the loan term by almost 5 years
and save 23% in interest charges or the equivalent of $108,000.
 B. Yes! All the money made towards the interest payments is a loss for
the homeowner as they are paying more than double money for what
they have taken. According to the calculations above the owner must
pay $279.017.80 more than they have taken for their home. But in
other point of view finance says that after 30 years the value of those
$200,000 will not be as same it will decrease so they need their money
back according to the time they have given it as a loan that is before
30 years. So we can say that it is not a loss for the homeowner as they
are returning the money back according to 30 years before when they
have taken it for their home. Thats all!

Question No. 2
In this question the concept of early saving and hire the risk, Higher the
gain is discussed.

Calculations: 500,000/65 20

= 500,000/45 (we need to calculate on monthly bases savings so we will

convert year into months by multiplying number of years with 12)

= 500,000/45*12

= 500,000/540

= $925.92 or $926

Explanation: if the person who is 20 years old now and he save $926 per
month he will be able to have $500,000 when he will be 65 years old. This
will be a 45 years saving.

Dangers
Risk cant neglect

Less return If the goals are to make money on the cash you
store away, then a savings account may disappoint you. Savings
accounts are not intended for accumulating high returns on the
money you put into them. In fact, one great disadvantage to
savings accounts is that they offer low interest rates, which
means a poor return for you. In fact, the returns may be so low
that you risk inflation eating away at the value of your deposit. If
you are interested in seeing growth on your reserves, stocks or
 bonds are another option, as you will hardly ever see any
significant movement with savings accounts. Of course, the stock
market is riskier than a savings account in a federally insured
bank, and you have to weigh the risks.
Uncertainty occurs in response to uncertainty regarding
future income. The precautionary motive to
delay consumption and save in the current period rises due to
the lack of completeness of insurance markets. Accordingly,
individuals will not be able to insure against some bad state of
the economy in the future. They expect that if this bad state is
realized, they will earn lower income. To avoid future income
fluctuations and retain a smooth consumption, they set aside a
precautionary reserve, by consuming less in the current period,
and resort to it in case the bad state is realized in the future.

Question No. 3
Difference and Relationship between Compound interest
and Discounting is given below.

Compounding
Definition:

The ability of an asset to generate earnings, which are reinvested in order to

generate their own earnings. In other words, compounding refers to generating
earnings from previous earnings. Compound interest earn on pervious interest.
IMF is issuing loans to Pakistan on compound interest.

Example:

Suppose you invest $10,000 into Cory's Tequila Company (ticker: CTC). The first
year, the shares rises 20%. Your investment is now worth $12,000. Based on
good performance, you hold the stock. In Year 2, the shares appreciate another
20%. Therefore, your $12,000 grows to $14,400. Rather than your shares
appreciating an additional $2,000 (20%) like they did in the first year, they
appreciate an additional $400, because the $2,000 you gained in the first year
grew by 20% too. If you extrapolate the process out, the numbers can start to
get very big as your previous earnings start to provide returns. In fact, $10,000
invested at 20% annually for 25 years would grow to nearly $1,000,000 (and
that's without adding any money to the investment)!

Discounting
Definition:

The process of determining the present value of a payment or a stream of payments that is to be
received in the future. Given the time value of money, a dollar is worth more today than it would be
worth tomorrow given its capacity to earn interest. Discounting is the method used to figure out how
much these future payments are worth today.

Example:
If a bank makes a loan of $20,000 at a simple interest rate (that is, a non-compounding rate) of 5%, the
bank simply does not give the borrower $1,000 (or 5% of $20,000). The borrower effectively borrows
$19,000 and repays it with no interest. Discount interest is very rare in retail banking.

Relation between discounting & Compounding

Interest
Compounding can be explained like you put money in an account today at its
present value (PV) for a promised rate of return (i) for a number of periods
(n). The interest received is reinvested at the end of each period, it
compounds. The future value (FV) is the value of the investment
compounded at the end of a given number of periods. We know the value of
our initial investment and the interest rate, and can calculate the FV at the
end of any period.
Discounting is the reverse of compounding. We know that how much we
need on a specific date in the future (FV) and calculate how much we need
to invest today (PV), at an interest rate. It works from the future back to the
present.