Question

An amortization table reports the amount of interest and principal contained within each regularly scheduled payment used to repay an amortized loan.

Example Amortization Schedule

Year | Beginning Amount | Payment | Interest | Repayment of Principal | Ending Balance |
---|---|---|---|---|---|

1 | |||||

2 | |||||

3 |

Consider the amount of the interest payments included in each of
the payments of an amortized loan. Which of the following
statements regarding the pattern of the interest payments is
**true**?

The portion of the payment going toward interest is smaller in the early years of the loan and increases as the loan is repaid.

The portion of the payment going toward interest is larger in the early years of the loan and decreases as the loan is repaid.

Everything else remaining constant, if you were to pay more than the minimum payment each year and apply the difference to the repayment of principal, the total amount of interest paid on the loan over its life would increase.

The total amount of interest paid over the life of a mortgage loan is equal to the total of all of the loan payments and the loan’s principal.

True or False. The periodic (for example, monthly, quarterly, or annual) payment for an amortized loan is determined as the payment term in the formula for the calculation of the present value of an annuity.

True

False

Your dream is coming true! You are about to complete the purchase of your first home. To do so, you will borrow $150,000 from a savings and loan association that requires an interest rate of 8.00% on your loan. To simplify your workload, assume that you will repay your mortgage loan over the next four years by making annual payments at the end of each year.

Complete the following loan amortization table by selecting the correct answers:

Year | BeginningAmount | Payment | Interest | Repaymentof Principal | EndingBalance |
---|---|---|---|---|---|

1 | $150,000 | ||||

2 | |||||

3 | |||||

4 |

Answer #1

Q1. True statement is: "* The portion of the payment
going toward interest is larger in the early years of the loan and
decreases as the loan is repaid.*"

As the principal outstanding is higher in initial years, interest payments is also higher in initial years. As the amount of outstanding principle declines over the amortization schedule, interest also declines.

Q2. The periodic (for example, monthly, quarterly, or annual)
payment for an amortized loan is determined as the payment term in
the formula for the calculation of the present value of an annuity
- **True**. (PMT is
the function used for the periodic payment or annuity)

Q3.

LOAN AMORTIZATION Jan sold her house on December 31 and took a
$10,000 mortgage as part of the payment. The 10-year mortgage has a
11% nominal interest rate, but it calls for semiannual payments
beginning next June 30. Next year Jan must report on Schedule B of
her IRS Form 1040 the amount of interest that was included in the
two payments she received during the year.
a. What is the dollar amount of each payment Jan receives? Round
your...

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,...

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.

Paulo borrowed $15,000 at a 14% 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.

eBook Problem Walk-Through
Jan sold her house on December 31 and took a $50,000 mortgage as
part of the payment. The 10-year mortgage has a 12% nominal
interest rate, but it calls for semiannual payments beginning next
June 30. Next year Jan must report on Schedule B of her IRS Form
1040 the amount of interest that was included in the two payments
she received during the year.
a. What is the dollar amount of each payment Jan
receives? Round...

Jan sold her house on
December 31 and took a $25,000 mortgage as part of the payment. The
10-year mortgage has a 6% nominal interest rate, but it calls for
semiannual payments beginning next June 30. Next year Jan must
report on Schedule B of her IRS Form 1040 the amount of interest
that was included in the two payments she received during the
year.
a. What is the dollar
amount of each payment Jan receives? Round your answer to...

Jan sold her house on December 31 and took a $50,000 mortgage as
part of the payment. The 10-year mortgage has a 9% nominal interest
rate, but it calls for semiannual payments beginning next June 30.
Next year Jan must report on Schedule B of her IRS Form 1040 the
amount of interest that was included in the two payments she
received during the year.
a. What is the dollar amount of each payment Jan receives? Round
your answer to...

Jan sold her house on December 31 and took a $40,000 mortgage as
part of the payment. The 10-year mortgage has a 9% nominal interest
rate, but it calls for semiannual payments beginning next June 30.
Next year Jan must report on Schedule B of her IRS Form 1040 the
amount of interest that was included in the two payments she
received during the year.
a. What is the dollar amount of each payment Jan receives? Round
your answer to...

Jan sold her house on December 31 and took a $30,000 mortgage
as part of the payment. The 10-year mortgage has a 6% nominal
interest rate, but it calls for semiannual payments beginning next
June 30. Next year Jan must report on Schedule B of her IRS Form
1040 the amount of interest that was included in the two payments
she received during the year.
a. What is the dollar amount of each payment Jan receives? Round
your answer to...

Find the amortization table for a $8,000 loan amortized over 3
years with semiannual payments if the interest rate is 8.3% per
year compounded semiannually. (Round your answers to the nearest
cent.)
End of
Period
Payment
Made
Payment
Toward
Interest
Payment
Toward
Principal
Outstanding
Principle
0
8000
1
2
3
4
5
6

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