Question

8. Prepare the loan amortization schedule ($15) You borrow $1,000, and the loan is to be repaid in three equal payments at the end of each of the next three years. The lender charges a 6 percent interest rate on the loan balance that is outstanding at the beginning of each year. 1) Calculate the payment the firm must repay each year. 2) Prepare the loan amortization schedule (fill all the numbers in each cell). Beginning Amount Repayment of Remaining Principal Balance Year Payment Interest paid TotalNA

Answer 1

1. Annual payment = 1000 * (A/P, 6%,3) = 1000 * 0.374110 = 374.11

2. Amortization Schedule

Year	Beginning Amount	Payment	Interest Paid	Repayment of Principal	Remaining Balance
1	1000	374.11	=1000 *0.06 = 60	=374.11 - 60 = 314.11	=1000-314.11 = 685.89
2	685.89	374.11	=685.89 * 0.06 = 41.15	=374.11 - 41.15 = 332.96	= 685.89 - 332.96 = 352.93
3	352.93	374.11	=352.93 * 0.06 = 21.18	= 374.11 - 21.18 = 352.93	0
Total		1122.33	=122.33	=1000