38. Amortizing Loan. Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four

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38. Amortizing Loan. Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four equal annual year-end payments. (LO3)

a. If the interest rate is 8%, show that the annual payment is $301.92.

b. Fill in the following table, which shows how much of each payment is interest versus princi- pal repayment (that is, amortization), and the outstanding balance on the loan at each date.

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c. Show that the loan balance after 1 year is equal to the year-end payment of $301.92 times the 3-year annuity factor.

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Fundamentals Of Corporate Finance

ISBN: 9780073382302

6th Edition

Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus

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Question Posted: Jul 31, 2024 09:01 AM

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38. Amortizing Loan. Consider a 4-year amortizing loan. You borrow $1,000 initially, and repay it in four

Question:

Loan Year-End Interest Year-End Amortization Time Balance Due on Balance 0 $1,000 $80 Payment $301.92 of Loan $221.92 1 301.92 2 301.92 3 301.92 4 0 0 -

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Fundamentals Of Corporate Finance

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