Question

In: Finance

35. Based on the information from Question 33 and 34, calculate the total amount of interests you should pay for the amortized loan in three years.

33. Construct an amortization schedule for a $1,000, 8% annual rate loan with 3 equal payments. The first payment will be made at the end of the1st year. Find the required annual payments: $338.0

34. Based on the information from Question 33, what’s the ending balance of the amortized loan at the end of the third year: $0

A. $128.8

B. $145.4

C. $150.0

D. $164.1

Expert Solution

33. Required annual payments is $388.03 and not $338.00 ( I will give the working at the end of this solution).

34. $0 is correct.

35. Total payment towards loan = $388.03 * 3 = $1,164.10

When you subtract the loan amount from total payment we get the total interest.

Total interest = $1,164.10 - $1,000 = $164.10

So the answer is D. $164.1

.

Now come back to 33.

I am using present value of annuity formula to find the yearly payment:

Where,
PVA = Present value of annuity
A = Annuity
i = Interest rate in decimal form
n = Number of years

Substituting the values, we get:

.

Amortization table:

Loan Amortization table
Year	Payment	Interest portion	Principal portion	Loan balance
0	-	-	-	$1,000.00
1	$388.03	$80.00	$308.03	$691.97
2	$388.03	$55.36	$332.68	$359.29
3	$388.03	$28.74	$359.29	$0.00
Total	1,164.10	164.10	1,000.00	-

Excel formulas and functions used in above table:

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Question

35. Based on the information from Question 33 and 34, calculate the total amount of interests you should pay for the amortized loan in three years.

Solutions

Expert Solution

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