TIME LOAN BALANCE YEAR-END INTEREST YEAR-END PAYMENT AMORTIZATION OF LOAN
DUE ON BALANCE
0 $1,000 $80 $301.92 $221.92
1 $301.92
2 $301.92
3 $301.92
4 0 0 x
4-year amortizing loan. Borrow $1,000 initially and repay it in four equal annual year-end payments.
Q1. If the interest rate is 8%, show that the annual payment is $301.92
Q2. Fill in the table; show how much of each payment is interest verses principal repayment and the outstanding balance on the loan at each date.
Q3. Show that the loan balance after 1 year is equal the year-end payment of $301.92 times the 3-year annuity factor.