The James Company has been offered a 4-year loan from its bank in the amount of

$100,000 at a stated interest rate of 10 percent per year. The loan will require four equal end-of-year payments of principal and interest plus a $30,000 balloon payment at the end of the fourth year.

•a. Compute the amount of each of the end-of-year payments.

b. Prepare a loan amortization schedule detailing the amount of principal and interest in each year’s payment.

c. What is the effective interest rate on this loan? Prove your answer. L01