Question

Loan amortization schedule  Personal Finance Problem   Joan Messineo borrowed

​$49 comma 00049,000

at a

66​%

annual rate of interest to be repaid over 3 years. The loan is amortized into three​ equal, annual,​ end-of-year payments.

a.  Calculate the​ annual, end-of-year loan payment.

b.  Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments.

c. Explain why the interest portion of each payment declines with the passage of time.

a.  The amount of the​ equal, annual,​ end-of-year loan payment is

​$nothing.

​(Round to the nearest​ cent.)

b.  Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. Many financial calculators have an amortization function which makes this process easy. Once the payment is determined in step a​ above, you can use the AMORT function to calculate the interest​ paid, principal paid and ending loan balance for each payment period. You should consult your calculator instructions for specific details pertaining to your calculator.

What is the account balance at the beginning of year​ 1?  ​(Round to the nearest​ cent.)

Answer 1

Loan amount	$            49,000
Annual interest rate	6%
Time in years	3
Year	PV factor
1	0.9434
2	0.8900
3	0.8396
Sum of PV factor	2.6730
Annual repayment * sum of PV factor=	$      49,000.00
Annual repayment * 2.6730=	$      49,000.00
Annual repayment=	49000/2.6730
Annual repayment=	$      18,331.46
Amortization Schedule
Year	Principal	Interest	Repayment	Closing balance
1	$            49,000	$                         2,940	$      (18,331)	$      33,609
2	$            33,609	$                         2,017	$      (18,331)	$      17,294
3	$            17,294	$                         1,038	$      (18,331)	$               (0)
With every passing year, the principal gets reduced and hence interest gets reduced in subsequent payments and principal gets
increasing.