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

a. If the interest rate is 8%, what is the annual payment?

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

 

Loan Year-End Interest Due on Total Year-End Amortization of Balance ($) Loan Balance ($) Payment ($) Loan ($) Time 1,000 1