Question

Consider a 4-year amortizing loan. You borrow $2,700 initially and repay it in four equal annual year-end payments.

a.	If the interest rate is 10%, what is the annual payment? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Annual payment

$

b.	Prepare an amortization schedule. (Leave no cells blank - be certain to enter "0" wherever required. Do not round intermediate calculations. Round your answers to 2 decimal places.)

Time		Loan Balance, $		Year-End Interest Due on Loan Balance, $		Total Year-End Payment, $		Amortization of Loan, $
1
2
3
4
5

Answer 1

a.	Annual payment		=	Loan amount / Present value of annuity of 1
			=	$       2,700.00	/	3.16987
			=	$           851.77
	Working:
	Present value of annuity of 1		=	(1-(1+i)^-n)/i			Where,
			=	(1-(1+0.10)^-4)/0.10			i	10%
			=	3.16987			n	4
b.	Amortization Schedule:
Time	Loan Balance (1)	Year-End Interest Due on Loan Balance (2)=(1)*10%	Total Year-End Payment (3)	Amortization of Loan (4)=(3)-(2)
1	$ 2,700.00	$ 270.00	$ 851.77	$           581.77
2	$ 2,118.23	$ 211.82	$ 851.77	$           639.95
3	$ 1,478.28	$ 147.83	$ 851.77	$           703.94
4	$     774.34	$    77.43	$ 851.77	$           774.34