A loan of 3000 at an effective quarterly interest rate of j = .02 is amor- tized by means of 12 quarterly payments, beginning one quarter after the loan is made. Each payment consists of a principal repayment of 250 plus interest due on the previous quarter's outstanding balance. Construct the amortization schedule. SOLUTION With an initial outstanding balance of L = OB = 3000, we have interest due at the end of the first quarter of amount I = 30000.02) = 60. Since the principal paid in the first payment is PR = 250, the total amount of the first payment is K1 = 1; +PR= 310. Then OB, = 0B - PR, = 3000 - 250 = 2750. Table 3.5 gives the full amortization schedule, where t counts quarters. TABLE 3.5 Payment Interest Due Principal Repaid Outstanding Balance K = 3101 = OB, xi = 60 305 300 PR = 250 250 250 250 L = OBO = 3000 OB = OB0-PR1 = 2750 2500 2250 295 2000 290 250 1750 285 250 1500 1250 280 IS 1000 270 250 250 250 250 250 750 500 250 Verify that at quarterly interest rate j =.02, the total payments in Example 3.4 (i.e., 310,305,..., 255) have present value 3000