Question

1. Complete an amortization schedule for a $26,000 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-IIIIIIIVVItem 22

Answer 1

Question a:

PV = Loan amount = $26,000

n = 3 years

r = interest rate = 9%

Annual loan amount = [r * PV] / [1 - (1+r)^-n]

= [9% * $26,000] / [1 - (1+9%)^-3]

= $2,340 / 0.22781652

= $10,271.4237

Annual loan payment = $10,271.42

Amortization Schedule
Payment	Beginning Balance	Payment	Interest Portion	Principal Portion	Closing Balance
A	B	C	D = B*9%	E = C-D	F = B-E
1	$26,000	$10,271.42	$2,340.00	$7,931.42	$18,068.58
2	$18,068.58	$10,271.42	$1,626.17	$8,645.25	$9,423.33
3	$9,423.33	$10,271.42	$848.10	$9,423.32	$0.0
Question b:
	% Interest	% Principal
Year 1	22.78%	77.22%
Year 2	15.83%	84.17%
Year 3	8.26%	91.74%

Why these percentages change overtime?

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.