Question

?Joan Messineo borrowed $16,000at a15%annual rate of interest to be repaid over 3 years. The loan is amortized into three? equal, annual,? end-of-year paymen

a.??Calculate the? annual, end-of-year loan payment.

b.??Prepare a loan amortization schedule showing the interest and principal breadown of each of the three loan payments.

c. Explain why the interest portion of each payment declines with the passage of time.

?Show calculations

Answer 1

A) The Annual Year End Loan Payment = $7,007.63

I have used Excel PMT formula to calulate the same. Please find the attach excel image for the detail solution.

B) Please find the attached image file of excel sheet all the quuestion solved with the relevent formula.

C) Since the lnterest is calulated on the outstanding balance of Principal amount and so every year after the payment of principal component the interest calculation gets reduced. As in the given question on Year 1 we have Outstanding balance of $16,000 and so interest calulated on $16000. But at year 2 Pricipal payment of $4,607.63 is made and so remaining outstanding pricipal left is only $11,392.37 and hence the interest is caluted on reduced amount and so the interest reduced after every year.

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