you are taking out a loan today of 10000 dollars. it will be paid off with...

you are taking out a loan today of 10000 dollars. it will be paid off with three annual payments, and it has an interest rate of 8% . For each of the next three years, calculate the beginning balance, interest paid, principal paid, and ending balance

Solutions

Expert Solution

PV of Loans =10000
Rate =8%
Number of Years =3
Annual Payment for the loan =PV/((1-(1+r)^-n)/r) =10000/((1-(1+8%)^-3)/8%) =3880.3351

Interest part in year 1 =8%*10000=800
Principal Part in year 1 =Annual Payment -Interest =3880.3351-800 =3080.3351 or 3080.34
Ending Balance in year 1 =PV of Loans-Principal Part in year 1 =10000-3080.3351 =6919.6649 or 6919.66

Interest part in year 2 =8%*Ending Balance in year 1 =8%*6919.6649 =553.5732 or 553.57
Principal Part in year 2=Annual Payment -Interest =3880.3351-553.5732 =3326.7619 or 3326.76
Ending Balance in year 2 =Ending Balance in year 1-Principal Part in year 2 =6919.6649-3326.76191 =3592.9030 or 3592.90

Interest part in year 3 =8%*Ending Balance in year 1 =8%*3592.9030 =287.4322 or 287.43
Principal Part in year 3=Annual Payment -Interest =3880.3351-287.4322 =3592.9030 or 3592.90
Ending Balance in year 3 =Ending Balance in year 2-Principal Part in year 2 =3592.90-3592.90 =0

jeff jeffy answered 1 year ago

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