M10-20 (Supplement 10D) Using an Online Calculator to Produce and Interpret an A
ID: 2532582 • Letter: M
Question
M10-20 (Supplement 10D) Using an Online Calculator to Produce and Interpret an Amortization Schedule [LO 10-S4] Access an online loan calculator with annual payments, such as the one at mycalculators.com, to produce an amortization schedule for Welton Corp.'s installment note that has original principal of $52,000, interest of 9% compounded annually, and a term of 3 years. (a) What is the annual payment? (b) Of this amount, how much represents interest in year 1? (c) How much principal is included in the year 1 payment? (d) How much interest is included in the year 2 payment? (Round your answers to the nearest whole dollar amount.) (a) Annual payment (b) Interest year 1 (c) Principal year1 (d) Interest year 2 (e) Over time, has the interest become a smaller or larger component of the annual payment? Smaller LargerExplanation / Answer
Part-1
(Refer workings)
Part – (e)
Workings
Total Loan Amount
52,000
Interest rate
9% per annum
Cumulative discount rate for 3 years
2.531
Loan Repayment installment
20,543
Working for calculation of cumulative discount rate
Year
Discounting factor
1
0.9174
2
0.8417
3
0.7722
2.5313
Loan repayment schedule
Year
principal out standing at the beginning of the year
installment
interest
principal repayment
balance out standing
(1)
(2)
(3)
(4) (2-3)
(5) (1-4)
1
52000
20545
4680
15,865
36,135
2
36135
20545
3252
17,293
18,842
3
18842
20545
1704
0
0
Total Loan Amount
52,000
Interest rate
9% per annum
Cumulative discount rate for 3 years
2.531
Loan Repayment installment
20,543
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