Consider a $12,000 loan with 4 equal annual payments and 10% interest.

a. Calculate the annual payment, n = 4, r = 0.10.

b. Prepare a complete loan payment schedule table for this loan. You need the time period, the beginning principal, payment, interest paid, principal paid, and ending principal in your table.

c. Now assume that the loan is fully amortized over 4 years, however, the interest rate is variable. That is, the bank changes a different rate each year as money market conditions change. Assume the rates turn out to be:

Year 1 10%

Year 2 12%

Year 3 14%

Year 4 10%

Compute what each year's interest and principal would be under the above scenario. To do this you will need to amortize the principal left at the beginning of each year over the remaining years of the loan at the new interest rate. This will give you the payment. Then you can calculate the interest paid and the principal paid each year.