Question

Loan amortization schedule  Personal Finance Problem Joan Messineo borrowed 41,000

at a 4​% 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.

Answer 1

Amount borrowed			41000
Divide: Annuity PVF at 4% for 3 yrs			2.77509
Annual payment			14774.3
Req b:
Year	Annual	Interest	Principal	Loan
	Payment	Expense	Repaid	Outstanding
0				41000
1	14774.3	1640	13134.3	27865.7
2	14774.3	1114.63	13659.67	14206.03
3	14774.3	568.27	14206.03	0
Interest payment is reducing with each year passing,
as the principal repayment is being done in each year which is reducing the outstanding loan