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Consider a 4-year amortizing loan. You borrow $2,700 initially and repay it in four equal annual...

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Finance

Consider a 4-year amortizing loan. You borrow $2,700 initiallyand repay it in four equal annual year-end payments.

a.

If the interest rate is 10%, what is the annual payment?(Do not round intermediate calculations. Round your answerto 2 decimal places.)

  Annual payment$   
b.

Prepare an amortization schedule. (Leave no cells blank- be certain to enter "0" wherever required. Do not roundintermediate calculations. Round your answers to 2 decimalplaces.)

TimeLoan Balance, $Year-End Interest Due on Loan Balance, $Total Year-End Payment, $Amortization of Loan, $
1
2
3
4
5

Answer & Explanation Solved by verified expert
4.1 Ratings (510 Votes)

a. Annual payment = Loan amount / Present value of annuity of 1
= $       2,700.00 /    3.16987
= $           851.77
Working:
Present value of annuity of 1 = (1-(1+i)^-n)/i Where,
= (1-(1+0.10)^-4)/0.10 i 10%
=             3.16987 n 4
b. Amortization Schedule:
Time Loan Balance (1) Year-End Interest Due on Loan Balance (2)=(1)*10% Total Year-End Payment (3) Amortization of Loan (4)=(3)-(2)
1 $ 2,700.00 $ 270.00 $ 851.77 $           581.77
2 $ 2,118.23 $ 211.82 $ 851.77 $           639.95
3 $ 1,478.28 $ 147.83 $ 851.77 $           703.94
4 $     774.34 $    77.43 $ 851.77 $           774.34

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Transcribed Image Text

Consider a 4-year amortizing loan. You borrow $2,700 initiallyand repay it in four equal annual year-end payments.a.If the interest rate is 10%, what is the annual payment?(Do not round intermediate calculations. Round your answerto 2 decimal places.)  Annual payment$   b.Prepare an amortization schedule. (Leave no cells blank- be certain to enter "0" wherever required. Do not roundintermediate calculations. Round your answers to 2 decimalplaces.)TimeLoan Balance, $Year-End Interest Due on Loan Balance, $Total Year-End Payment, $Amortization of Loan, $12345

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