Question

1. Complete an amortization schedule for a $15,000 loan to be repaid in equal installments at the end of each of the next 3 years. The interest rate is 9% compounded annually. If an amount is zero, enter "0". Do not round intermediate calculations. Round your answers to the nearest cent.

   	Beginning			Repayment	Remaining
   Year	Balance	Payment	Interest	of Principal	Balance
   1	$	$	$	$	$
   2
   3

2. What percentage of the payment represents interest and what percentage represents principal for each of the 3 years? Do not round intermediate calculations. Round your answers to two decimal places.

   	% Interest	% Principal
   Year 1:	%	%
   Year 2:	%	%
   Year 3:	%	%

   Why do these percentages change over time?

   1. These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the remaining or outstanding balance declines.
   2. These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the remaining or outstanding balance declines.
   3. These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the remaining or outstanding balance increases.
   4. These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the remaining or outstanding balance increases.
   5. These percentages do not change over time; interest and principal are each a constant percentage of the total payment.
   -Select-IIIIIIIVV

Answer 1

a

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

15000= Cash Flow*((1-(1+ 9/100)^-3)/(9/100))

Cash Flow = 5925.82

	Annual rate(M)=	yearly rate/1=	9.00%	Annual payment=	5925.82
Year	Beginning balance (A)	Annual payment	Interest = M*A	Principal paid	Ending balance
1	15000.00	5925.82	1350.00	4575.82	10424.18
2	10424.18	5925.82	938.18	4987.65	5436.53
3	5436.53	5925.82	489.29	5436.53	0.00

Where

Interest paid = Beginning balance * Annual interest rate

Principal = Annual payment – interest paid

Ending balance = beginning balance – principal paid

Beginning balance = previous Year ending balance

b

Interest %	Principal %
22.78%	77.22%
15.83%	84.17%
8.26%	91.74%

c