Question

3) You're ready to make the last of four equal, annual payments on a $1,000 loan with a 7.77% interest rate. How much of this last payment is towards paying off accrued interest and how much towards paying off the remaining principal? (Read Amortized Loans section in Chapter 5 in your textbook)

Explain your work

Answer 1

$ Amount of Loan Rate of Interest Time 1,000 7.77% 4 years PV of Annuity Factor (7.77%,4) Annual Installment ($1000 /3.32915) 3.32915 $ 300.38 Year 0 1 2 3 Loan Amortization Interest Principal Installement @7.77% repaid Closing Balance $ 1,000 $ 300.38 $ 77.70 $ 222.68 $ 777.32 $ 300.38 $ 60.40 $ 239.98 $ 537.34 $ 300.38 $ 41.75 $ 258.63 $ 278.72 $ 300.38 $ 21.66 $ 278.72 $ (0.00) 2 4 On last payment, Accrued Interest Principal Portion $ 21.66 $ 278.72

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