Pearland Medical Center’s board recently decided to investigate ways to increase revenues. The organization has the benefit of different revenue streams, including patient revenue and returns on investments. Additionally, the Center has just borrowed $1,000,000 on a five-year loan with annual payment term at a 12 percent rate. The first payment will be due one year from now. This assignment has two parts:
Part 1: Amortization Schedule
Construct the amortization schedule for this loan.
How do the interest payment, principal payment, and total payment change when a loan is amortized?
Part 2: Investments
Suppose the board were going to invest in an ordinary annuity requiring a payment of $10,000 over the next five years with an interest rate of 5%. What is the future value of this ordinary annuity investment?
The board is considering other options for investing as well. For example, they want to double their investment of $70,000 over the next 12 years by using conventional securities with a projected return of 6%. Does the present value of the investment indicate that this is possible?
What criteria should you examine in considering annuities?