a. Complete an amortization schedule for a $40,000 loan to be repaid in equal installments at the end of each of the next three years. The interest rate is 7% compounded annually. Round all answers to the nearest cent. Year Beginning Balance 1 2 3 $ $ $ Repayment Payment Interest of Principal Ending Balance b. What percentage of the payment represents interest and what percentage represents principal for each of the three years? Round all answers to two decimal places. % Interest % Principal Year 1: % % Year 2: % % Year 3: % % 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 remaining or outstanding 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 remaining or outstanding 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 remaining or outstanding 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 remaining or outstanding balance increases. V. These percentages do not change over time; interest and principal are each a constant percentage of the total payment.
a. Complete an amortization schedule for a $40,000 loan to be repaid in equal installments at the end of each of the next three years. The interest rate is 7% compounded annually. Round all answers to the nearest cent. Year Beginning Balance 1 2 3 $ $ $ Repayment Payment Interest of Principal Ending Balance b. What percentage of the payment represents interest and what percentage represents principal for each of the three years? Round all answers to two decimal places. % Interest % Principal Year 1: % % Year 2: % % Year 3: % % 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 remaining or outstanding 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 remaining or outstanding 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 remaining or outstanding 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 remaining or outstanding balance increases. V. These percentages do not change over time; interest and principal are each a constant percentage of the total payment.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:a. Complete an amortization schedule for a $40,000 loan to be repaid in equal installments at the end of each of the next three years. The interest rate is
7% compounded annually. Round all answers to the nearest cent.
Year
Beginning
Balance
1
2
3
$
$
$
Repayment
Payment
Interest
of Principal
Ending
Balance
b. What percentage of the payment represents interest and what percentage represents principal for each of the three years? Round all answers to two
decimal places.
% Interest
% Principal
Year 1:
%
%
Year 2:
%
%
Year 3:
%
%
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
remaining or outstanding 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
remaining or outstanding 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
remaining or outstanding 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
remaining or outstanding balance increases.
V. These percentages do not change over time; interest and principal are each a constant percentage of the total payment.
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