You signed on an amortized loan. Under the loan, you will borrow $1000 at an annual...

You signed on an amortized loan. Under the loan, you will borrow $1000 at an annual rate of 6% for 3 years. Lets generate an amortized loan table showing payment scheduling.

To generate the amortized loan table, we need to understand a same amount of payment (composed of interest charge and principal).

Using PV of Ordinary Annuity equation, we can calculate an annual payment. C = 374.11.

At the 1^st year, you are required to pay 374.11. Out of 374.11, 60 (=1000 x 0.06) will be used to pay an annual interest charge. The remaining 314.11 (=374.11- 60) will be used to pay a principal loan amount. Thus after 1^st year, your principal loan amount will be 685.89 (=1000 – 314.11). It will be rounded up to 686 which is your principal loan at the second year.

At the 2^nd year you will again pay 374.11 which will cover 6% of 686. Then new remaining will reduce principal loan. This payment will continuously happen at the 3^rd year. As you can see in the table, at the 3^rd year, you will pay off all loan.

Findings: as time goes on, interest payments reduce but principal payments increase.

What are the step to calculate this equation on a financial calculator?

Solutions

Expert Solution

Answer) Please find Screenshot for step wise solution. Just follow the steps to get the answer. Please note I have used BAII Plus caculator as I have that.

GOOD LUCK!!

jeff jeffy answered 1 year ago

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