Question

Loan amortization schedule Personal Finance Problem Joan Messineo borrowed $49,000 at a 3% 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 ​$ . ​(Round to the nearest​ cent.)

Answer 1

Answer a.

Amount borrowed = $49,000
Interest rate = 3%
Time period = 3 years

Let annual payment be $x

$49,000 = $x/1.03 + $x/1.03^2 + $x/1.03^3
$49,000 = $x * (1 - (1/1.03)^3) / 0.03
$49,000 = $x * 2.828611
$x = $17,322.99

Annual payment = $17,322.99

Answer b.

Answer c.

Through annual​ end-of-the-year payments, the principal balance of the loan is​ declining, causing less interest to be accrued on the balance.