Question

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.)

Answer #1

The annual year end payment is calculated using the following equation

**Annual year end payment = $ 895.14**

**-------------------------------------------------------------------**

**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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