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Assume that you will have a 10-year, $19,000 loan to repay when you graduate from college...

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Accounting

Assume that you will have a 10-year, $19,000 loan to repay whenyou graduate from college next month. The loan, plus 6 percentannual interest on the unpaid balance, is to be repaid in 10 annualinstallments of $2,581 each, beginning one year after you graduate.You have accepted a well-paying job and are considering an earlysettlement of the entire unpaid balance in just three years(immediately after making the third annual payment of $2,581).Prepare an amortization schedule showing how much money you willneed to save to pay the entire unpaid balance of your loan threeyears after your graduation. (Round your answers to the nearestdollar amount. Enter all amounts as positivenumbers.)  

Answer & Explanation Solved by verified expert
3.6 Ratings (319 Votes)

Since amount for first three years is fixed annual payment already given in
question, we just have to arrive at outstanding balance at the end of three years
that can be paid in lump sum for final settlement of loan.
A B = D x 6% C = A -B D
interest period annual payment annual interest expense @6% reduction in unpaid balance unpaid balance
date of graduation 19,000
year 1        2,581               1,140          1,441 17,559
year 2        2,581               1,054          1,527 16,032
year 3        2,581                  962               1,619     14,412
Explanation:      19,000 given
       2,581 given
First Row 1140 = 19000 x 6%
First Row 1441 = 2581 - 1140
First Row 17559 = 19000-1441

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