Using the same process as you did for year 1, complete the following amortization table by filling in the remaining values for years 2 and 3. Beginning Amount Payment Repayment of Principal Ending Balance Year 1 2 3 $28,000.00 Interest $0.00
Using the same process as you did for year 1, complete the following amortization table by filling in the remaining values for years 2 and 3. Beginning Amount Payment Repayment of Principal Ending Balance Year 1 2 3 $28,000.00 Interest $0.00
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:Enter the ending balance for year 1 and the beginning amount for year 2 in the following table.
Using the same process as you did for year 1, complete the following amortization table by filling in the remaining values for years 2 and 3.
Beginning Amount
Repayment of Principal Ending Balance
Year
1
2
3
$28,000.00
Payment Component
Interest
Complete the following table by determining the percentage of each payment that represents interest and the percentage that represents principal
for each of the three years.
Repayment of Principal
Payment
Percentage of Payment
Year 1
Year 2 Year 3
Step 3: Practice: Amortization Schedule
Now it's time for you to practice what you've learned.
Year Beginning Amount
1
$34,000.00
Interest
Suppose Becky receives a $34,000.00 loan to be repaid in equal installments at the end of each of the next 3 years. The interest rate is 8%
compounded annually.
Complete the following amortization schedule by calculating the payment, interest, repayment of principal, and ending balance for each year.
$0.00
Payment
Interest
Repayment of Principal Ending Balance
Transcribed Image Text:Ch 05- Video Lesson - Time Value of Money
Suppose Alex receives a $28,000.00 loan to be repaid in equal installments at the end of each of the next 3 years. The interest rate is 3%
compounded annually.
Use the formula for the present value of an ordinary annuity to find this payment amount:
PVAN =
PMT =
PMT X
PVAN X
(1+) N
I
In this case, PVAN equals
(1+ŋ)N
is
, I equals
Using the formula for the present value of an ordinary annuity, the annual payment amount for this loan is
and N equals
Because this payment is fixed over time, enter this annual payment amount in the "Payment" column of the following table for all three years.
The interest paid in year 1 is
Each payment consists of two parts-interest and repayment of principal. You can calculate the interest in year 1 by multiplying the loan balance
at the beginning of the year (PVAN) by the interest rate (I). The repayment of principal is equal to the payment (PMT) minus the interest charge
for the year:
Enter the values for interest and repayment of principal for year 1 in the following table.
Because the balance at the end of the first year is equal to the beginning amount minus the repayment of principal, the ending balance for year 1
This is
the beginning amount for year 2.
Enter the ending balance for year 1 and the beginning amount for year 2 in the following table.
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