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Amortizing Loan

TIME LOAN BALANCE YEAR-END INTEREST YEAR-END PAYMENT AMORTIZATION OF LOAN
DUE ON BALANCE

0 $1,000 $80 $301.92 $221.92
1 $301.92
2 $301.92
3 $301.92
4 0 0 x

4-year amortizing loan. Borrow $1,000 initially and repay it in four equal annual year-end payments.

A) If the interest rate is 8%, show that the annual payment is $301.92
B) Fill in the table; show how much of each payment is interest verses principal repayment and the outstanding balance on the loan at each date.
C) Show that the loan balance after 1 year is equal the year-end payment of $301.92 times the 3-year annuity factor.

Solution Preview

TIME LOAN BALANCE YEAR-END INTEREST YEAR-END PAYMENT AMORTIZATION OF LOAN
DUE ON BALANCE

0 $1,000
1 $301.92
2 $301.92
3 $301.92
4 $301.92

4-year amortizing loan. Borrow $1,000 initially and repay it in four equal annual year-end ...

Solution Summary

This solution is comprised of a detailed calculation and amortization schedule for loan.

$2.19