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Amortizing Loan and Bonds

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

If the interest rate is 8 percent, show that the annual payment is $301.92

Fill in the following 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.

Time Loan Balance Year-End Interest Due on Balance Year-End Payment Amortization of Loan
0 $1,000 $80 $301.92 $221.92
1 ????? ????? 301.92 ?????
2 ????? ????? 301.92 ?????
3 ????? ????? 301.92 ?????
4 0 0

5 Bond Pricing. If Circular File wants to issue a new 6-year bond at face value, what coupon rate must the bond offer?

6. Bond Yields. An AT&T bond has 10 years until maturity, a coupon rate of 8 percent, and sells for $1,100.

What is the current yield on the bound

What is the yield to maturity.


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