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    Calculating annual payments on an amortizing loan

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    Please help with the attached problem. Please include formulas and steps to solution.

    Amortizing Loan. Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four equal annual year-end payments.

    c) Show that the loan balance after 1 year is equal to the year-end payment of $301.92 times the 3-year annuity factor.

    Thank you for your help.

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    Solution Preview

    In order to find out a loan amortization, you have to use the annuity tables. since the annual payments are equal, the repayments are an annuity. Whatever you repay will have the present value equal to the amount of loan taken. Therfore, given an interest rate and the repayment period, find out the factor from the ...

    Solution Summary

    The solution explains how the principal balance reduces on an amortizing loan