Amortizing Loan. Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four equal annual year-end payments.
a. If the interest rate is 8 percent, show that the annual payment is $301.92.
b. Fill in the attached table, which shows how much of each payment is interest versus principal repayment (that is, amortization), and the outstanding balance on the loan at each date.
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.
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The solution explains the computation of amortization amount of loan.