Excel Online Structured Activity: Amortization schedule

The data on a loan has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

Open spreadsheet

a$.$ Complete an amortization schedule for a $$28,000$ loan to be repaid in equal installments at the end of each of the next three years. The interest rate is $7\%$ compounded annually. Round all answers to the nearest cent.

Beginning Repayment Ending

Year Balance Payment Interest of Principal Balance

$1$ $ fill in the blank $2$

$ fill in the blank $3$

$ fill in the blank $4$

$ fill in the blank $5$

$ fill in the blank $6$

$2$ $ fill in the blank $7$

$ fill in the blank $8$

$ fill in the blank $9$

$ fill in the blank $10$

$ fill in the blank $11$

$3$ $ fill in the blank $12$

$ fill in the blank $13$

$ fill in the blank $14$

$ fill in the blank $15$

$ fill in the blank $16$

b$.$ What percentage of the payment represents interest and what percentage represents principal for each of the three years? Round all answers to two decimal places.

$\%$ Interest $\%$ Principal

Year $1$: fill in the blank $17$

$\%$ fill in the blank $18$

$\%$

Year $2$: fill in the blank $19$

$\%$ fill in the blank $20$

$\%$

Year $3$: fill in the blank $21$

$\%$ fill in the blank $22$

$\%$

c$.$ Why do these percentages change over time?

These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the remaining or outstanding balance declines.

These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the remaining or outstanding balance declines.

These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the remaining or outstanding balance increases.

These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the remaining or outstanding balance increases.

These percentages do not change over time; interest and principal are each a constant percentage of the total payment. Amortization schedule

Loan amount to be repaid $($PV$)$ $$28,000\mathrm{.}00$

Interest rate $($r$)7\mathrm{.}00\%$

Length of loan $($in years$)3$

a$.$ Setting up amortization table Formula

Calculation of loan payment #N$/$A

Year Beginning Balance Payment Interest Repayment of Principal Remaining Balance

$1$

$2$

$3$

b$.$ Calculating $\%$ of Payment Representing Interest and Principal for Each Year

Year Payment $\%$ Representing Interest Payment $\%$ Representing Principal Check: Total $=100\%$

$1$

$2$

$3$

Formulas

Year Beginning Balance Payment Interest Repayment of Principal Remaining Balance

$1$ #N$/$A #N$/$A #N$/$A #N$/$A #N$/$A

$2$ #N$/$A #N$/$A #N$/$A #N$/$A #N$/$A

$3$ #N$/$A #N$/$A #N$/$A #N$/$A #N$/$A

b$.$ Calculating $\%$ of Payment Representing Interest and Principal for Each Year

Year Payment $\%$ Representing Interest Payment $\%$ Representing Principal Check: Total $=100\%$

$1$ #N$/$A #N$/$A #N$/$A

$2$ #N$/$A #N$/$A #N$/$A

$3$ #N$/$A #N$/$A #N$/$A