Question

Consider a 4-year amortizing loan. You borrow $2,900 initially and repay it in four equal annual...

Consider a 4-year amortizing loan. You borrow $2,900 initially and repay it in four equal annual year-end payments. a. If the interest rate is 9%, what is the annual payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. Prepare an amortization schedule. (Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required.)

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Answer #1

The annual year end payment is calculated using the following equation

Annual year end payment = $ 895.14

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The amortization schedule is developed using excel.

Year Beginning balance ($) Annual payment($) Interest ($) Principal paid($) Ending balance($)
1 2900 895.14 0.09 × 2900 = 261 895.14 - 261 = 634.14 2900 - 634.14 = 2265.86
2 2265.86 895.14 0.09 × 2265.86 = 203.93 895.14 - 203.93 = 691.21 2265.86 - 691.21 = 1574.65
3 1574.65 895.14 0.09 × 1574.65 = 141.72 895.14 - 141.72 = 753.42 1574.65 - 753.42 = 821.23
4 821.23 895.14 0.09 × 821.23 = 73.91 895.14 - 73.91 = 821.23 821.23 - 821.23 = 0
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