CHAPTER 6-12

# CHAPTER 6-12 - 2 33,600.00 11,088.00 2,688.00 8,400.00...

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Total interest over life of the loan = \$3,360 + 2,787.27 + 2,168.71 + 1,500.68 + 779.20 Total interest over life of the loan = \$10,595.86 56. This amortization table calls for equal principal payments of \$8,400 per year. The interest payment is the beginning balance times the interest rate for the period, and the total payment is the principal payment plus the interest payment. The ending balance for a period is the beginning balance for the next period. The amortization table for an equal principal reduction is: Year Beginning Balance Total Payment Interest Payment Principal Payment Ending Balance 1 \$42,000.00 \$11,760.00 \$3,360.00 \$8,400.00 \$33,600.00
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Unformatted text preview: 2 33,600.00 11,088.00 2,688.00 8,400.00 25,200.00 3 25,200.00 10,416.00 2,016.00 8,400.00 16,800.00 4 16,800.00 9,744.00 1,344.00 8,400.00 8,400.00 5 8,400.00 9,072.00 672.00 8,400.00 0.00 In the third year, \$2,016 of interest is paid. Total interest over life of the loan = \$3,360 + 2,688 + 2,016 + 1,344 + 672 = \$10,080 Notice that the total payments for the equal principal reduction loan are lower. This is because more principal is repaid early in the loan, which reduces the total interest expense over the life of the loan....
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