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Loan amortization schedule Personal Finance Problem Joan Messineo borrowed $42.000 at a 7% annual rate of interest to be repaid over 3 years. The loan
Loan amortization schedule Personal Finance Problem Joan Messineo borrowed $42.000 at a 7% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal, annual, end-of-year payments. a. Calculate the annual, end-of-year loan payment b. Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. c. Explain why the interest portion of each payment declines with the passage of time. a. The amount of the equal, annual, end-of-year loan payment is $. (Round to the nearest cent) b. Prepare a loan amortization schedule showing the interest and principal breakdown of each of the three loan payments. Many financial calculators have an amortization function which makes this process easy. Once the payment is determined in step a above, you can use the AMORT function to calculate the interest paid, principal paid and ending loan balance for each payment period. You should consult your calculator instructions for specific details pertaining to your calculator. What is the account balance at the beginning of year 12 (Round to the nearest cent.) Beginning- of-year principal Loan payment Year Payments Interest Principal End-of-year principal 1 What is the amount of the loan payment at the end of year 12 (Round to the nearest cent.) Beginning- of-year principal $42.000 Year Payments Interest Principal Loan payment End-of-year principal 1 What portion of the payment is applied to interest in year 1? (Round to the nearest cent.) Beginning- Payments of-year Loan End-of-year Year principal payment Interest Principal principal 1 $42.000 $16.004.17 What portion of the payment is applied to the principal in year 1? (Round to the nearest cent.) Year Beginning- of-year principal $42.000 Loan payment $16.004.17 Payments Interest Principal $2.940.00 End-of-year principal 1 What is the principal balance at the end of year 1? (Round to the nearest cent.) Beginning- of-year principal $42.000 Year Loan payment $16.004.17 End-of-year principal Payments Interest Principal $2.940.00 $13,064.17 1 What is the account balance at the beginning of year 2? (Round to the nearest cent.) Year Beginning- of-year principal $42.000 Loan payment $16.004.17 Payments Interest Principal $2,940.00 $13,064.17 End-of-year principal $28,935.83 1 2 What is the amount of the loan payment at the end of year 2? (Round to the nearest cent.) Year Beginning- of-year principal $42.000 $28,935.83 Loan payment $16.004.17 Payments Interest Principal $2,940.00 $13,064.17 End-of-year principal $28,935.83 1 2 What portion of the payment is applied to interest in year 2? (Round to the nearest cent.) Year 1 Beginning- of-year principal $42,000 $28,935.83 Loan payment $16.004.17 $16.004.17 Payments Interest Principal $2.940.00 $13,064.17 End-of-year principal $28,935.83 2 What portion of the payment is applied to the principal in year 2? (Round to the nearest cent.) Year Beginning- of-year principal $42.000 $28,935.83 Loan payment $16.004.17 $16.004.17 Payments Interest Principal $2,940.00 $13,064.17 $2,025.51 End-of-year principal $28,935.83 1 2 What is the principal balance at the end of year 2? (Round to the nearest cent.) Year 1 Beginning- of-year principal $42.000 $28,935.83 Loan payment $16.004.17 $18.004.17 Payments Interest Principal $2.940.00 $13.064.17 $2,025.51 $13,978.66 End-of-year principal $28.935.83 2 What is the account balance at the beginning of year 3? (Round to the nearest cent.) Beginning- of-year Loan Payments Year principal payment Interest Principal 1 $42.000 $16.004.17 $2.940.00 $13.064.17 2 $28,935.83 $16.004.17 $2,025.51 $13.078.66 3 End-of-year principal $28.935.83 $14,957.17 What is the amount of the loan payment at the end of year 3? (Round to the nearest cent) Year 1 2 3 Beginning- of-year principal $42.000 $28,935.83 $14.957.17 Loan payment $16.004.17 $16.004.17 Payments Interest Principal $2.940.00 $13,064.17 $2,025.51 $13,978.68 End-of-year principal $28.935.83 $14,957.17 What portion of the payment is applied to interest in year 3? (Round to the nearest cent.) Payments Year 1 2 Beginning- of-year principal $42.000 $28,935.83 $14,957.17 Loan payment $16.004.17 $16.004.17 $16.004.17 Interest $2.940.00 $2,025.51 Principal $13,064.17 $13,978.66 End-of-year principal $28.935.83 $14.957.17 3 What portion of the payment is applied to the principal in year 3? (Round to the nearest cent.) Payments Year 1 2 3 Beginning- of-year principal $42,000 $28,935.83 $14,957.17 Loan payment $16.004.17 $16.004.17 $16.004.17 Interest $2.940.00 $2,025.51 $1,047.00 Principal $13,064.17 $13,978.66 End-of-year principal $28.935.83 $14,957.17 What is the principal balance at the end of year 3? (Round to the nearest cent.) Beginning- of-year Loan Payments Year principal payment Interest Principal 1 $42.000 $16.004.17 $2.940.00 $13,064.17 2 $28,935.83 $16.004.17 $2,025.51 $13,978.66 3 $14,957.17 $10.004.17 $1,047.00 $14,957.17 End-of-year principal $28.935.83 $14.957.17 c. Explain why the interest portion of each payment declines with the passage of time. (Select the best answer below.) O A. Through annual end-of-the-year payments, the interest balance of the loan is declining, causing less principal to be accrued on the balance. OB. Through annual end-of-the-year payments, the principal balance of the loan is declining, causing more interest to be accrued on the balance O c. Through annual end-of-the-year payments, the principal balance of the loan is declining, causing less interest to be accrued on the balance. OD. Through annual end-of-the-year payments, the principal balance of the loan is increasing, causing less interest to be accrued on the balance
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