Consider a 4-year amortizing loan. You borrow $1,900 initially, and repay it in

Question

Consider a 4-year amortizing loan. You borrow $1,900 initially, and repay it in four equal annual year-end payments.

a. If the interest rate is 8%, calculate the annual payment. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Annual payment $

b. Prepare an amortization schedule. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Time               Loan Balance                 Year-End Interest Due on Balance                  Year-End Payment              Amortization of Loan

0                      

1

2

3

4

What is the loan balance after year 1? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

c-1.

What is the loan balance after year 1? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

a. Annual payment:

1000=C*[1-(1+.08)^-4]/.08

1000=C*3.3121

C=$301.92

b. Amortization schedule:

C.loan balance after year1:

Pv=301.92[1_(1+.08)^-3]/.08

=301.92×2.577

=$778.08

Time loan balance year end interest year end payments amortization of loan 0 1000 80 301.92 221.92 1 778.08 62.24 301.92 239.68 2 538.40 43.07 301.92 258.84 3 279.56 22.36 301.93 279.56 4 0 0

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