Amortization schedule a) Set up an amortization schedule for a $42,000 loan to b
ID: 2774379 • Letter: A
Question
Amortization schedule
a) Set up an amortization schedule for a $42,000 loan to be repaid in equal installments at the end of each of the next 3 years. The interest rate is 6% compounded annually. Round all answers to the nearest cent.
b) What percentage of the payment represents interest and what percentage represents principal for each of the 3 years? Round all answers to two decimal places.
c) Why do these percentages change over time?
I. These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the balance declines.
II. These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the balance declines.
III. These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the balance increases.
IV. These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the balance increases.
V. These percentages do not change over time; interest and principal are each a constant percentage of the total payment.
Explanation / Answer
Answer 1
Amortiziation Schedule
Principal = 42000$
Interest Rate = 6% (annually compund)
Period = 3 years
Answer-2
As we see in above chart, We will pay $ 15332.64 per annum.
In Ist Year, We will pay interest $ 2161.71 and in term of percentage is 2161.71/15332.64*100 = 14.10%
We will pay principal $ 13170.96 and in term of percentage is 13170.96/15332.64*100 = 85.90%
In IInd year, We will pay interest $ 1349.36 and in term of percentage is 1349/15332.64*100 = 8.80%
We will pay principal $ 13983.30 and in term of percentage is 13983.30/15332.64*100 = 91.20%
In IIIrd Year, We will pay interest $ 486.91 and in term of percentage is 486.91/15332.64*100 = 3.18%
We will pay principal $ 14845.75 and in term of percentage is 14845.75/15332.64*100 = 96.82%
Answer-3 correct Answer is I. Because as you seen above chart, interest paid each year is declining as the balance declines.
Sl. No. Interest Principal Balance 1 210.00 1067.72 40932.28 2 204.66 1073.06 39859.22 3 199.30 1,078.43 38780.79 4 193.90 1083.82 37696.98 5 188.48 1089.24 36607.74 6 183.04 1094.68 35513.06 7 177.57 1100.16 34412.90 8 172.06 1105.66 33307.24 9 166.54 1111.19 32196.06 10 160.98 1116.74 31079.32 11 155.40 1122.32 29956.99 12 149.78 1127.94 28829.06 13 144.15 1133.58 27695.48 14 138.48 1139.24 26556.24 15 132.78 1144.94 25411.30 16 127.06 1150.66 24260.63 17 121.30 1156.42 23104.21 18 115.52 1162.20 21942.01 19 109.71 1168.01 20774.00 20 103.87 1173.85 19600.15 21 98.00 1179.72 18420.43 22 92.10 1185.62 17234.81 23 86.17 1191.55 16043.26 24 80.22 1197.51 14845.76 25 74.23 1203.49 13642.27 26 68.21 1209.51 12432.76 27 62.16 1215.56 11217.20 28 56.09 1221.64 9995.56 29 49.98 1227.74 8767.82 30 43.84 1233.88 7533.94 31 37.67 1240.05 6293.88 32 31.47 1246.25 5047.63 33 25.24 1252.48 3795.15 34 18.98 1258.75 2536.40 35 12.68 1265.04 1271.36 36 6.36 1271.36 0.00
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