You borrow $10 000 at 14 percent compound annual interest for four years. The loan is repayable in

QUESTION

You borrow $10,000 at 14 percent compound annual interest for four years. The loan is repayable in four equal annual installments payable at the end of each year.a. What is the annual payment that will completely amortize the loan over four years? (You may wish to round to the nearest dollar.)b. Of each equal payment, what is the amount of interest? The amount of loan principal?
Solution: a) PV = A*(1-(1+i)^-n)/i 10000 = A*(1-(1+.14)^-4)/.14 A = 3432.05 OR = 3432 b) Amortization schedule: Year Loan balance Interest Installment Principle repaid 1 10,000.00

0 3432.05 2,032.05 2 7,967.95 1,115.51 3432.05 2,316.54 3 5,651.41 791.20 3432.05 2,640.85 4 3,010.56 421.48 3432.05 3,010.57

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