Question

Joan Messineo borrowed ​$47,000 at a 5​% 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.

Answer 1

a) The value of the Annual Payment is A=$17,258.80

b) Is the picture in the attachment file

c) As you can see it in the picture with each payment, balance comes down, due it is the interest base, Interest portion comes down too.

Explanation:

Hi

a) First of all, we are going to list the Knowns:
`VP=47000`,
`i=5`% and
`n=3`, Then we can use
`A=(VP)/((1-(1+i)^(-n) )/(i) ) =(47000)/((1-(1+0.05)^(-3) )/(0.03) )=17258.80`. So this is the value of the Annual Payment