Question

Prepare an amortization schedule for a three-year loan of $75,000. The interest rate is 8 percent per year, and the loan agreement calls for a principal reduction of $25,000 every year. How much total interest is paid over the life of the loan? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Leave no cells blank. You must enter '0' for the answer to grade correctly.)

Year	Beginning Balance	Total Payment	Interest Payment	Principal Payment	Ending Balance
1	$	$	$	$	$
2
3
		Total interest	$

Answer 1

	a	b=c + d	c=a*8%	d	e=a-d
Year	Beginning balance	Total Payment	Interest Payment	Principal Payment	Ending balance
1	75000	31000	6000	25000	50000
2	50000	29000	4000	25000	25000
3	25000	27000	2000	25000	0
Total			$12000	$75000

Total Interest = $12000

For Understanding the calculation, year 1 calculation shown below:

Calculation of year 1:

Step 1: Calculate Interest = Opening Balance* Interest rate = $75000*8% = $6000

Step 2: Total Payment = Principal payment+ Interest payment

Principal payment = 25000 [given in question]

Interest payment = 6000 [step1 calculation]

Total Payment = 25000 + 6000 = 31000

Step3: Ending Balance = Opening Balance-Principal Payment = 75000-25000=50000