Question

Suppose you are purchasing a car. You will borrow $40,000 and make annual payments on a three-year amortized loan. The interest rate is 8%.

Construct an amortization table for this loan.

Year	Beginning Balance	Payment	Interest Pmt	Principal Pmt	Ending Balance
1.
2.
3.

Answer 1

annual payment on loans = loan amount / Present value of annuity factor.

here,

loan amount = $40,000

present value factor = [1 - (1+r)^(-n)]/r

here,

r =8%.

n = 3

=>[1- (1.08)^(-3)]/0.08

=>2.5770975.

now,

annual payment = $40,000 / 2.5770975

=>$15,521..

now,

amortisation table.

year	beginning balance	payment	interest payment (beginning balance *8%)	principal payment (payment - interest payment)	ending balance (beginning balance - principal payment)
1.	40,000	15,521	40,000*8%=>3,200	(15,521-3200)=>12,321	(40,000-12,321)=>27,679
2.	27,679	15,521	27,679*8%=>2,214	(15,521-2214)=>13,307	(27,679-13,307)=>14,372
3	14,372	15,521	14,372*8%=>1,150	(15,521-1150)=>14,372	(14,372-14,372)=>0