This preview shows page 1. Sign up to view the full content.
Unformatted text preview: the year-4 principal payment (in column 4). Table Use Table A–4 indicates that the present value interest factor for an
annuity corresponding to 10% and 4 years (PVIFA10%,4yrs) is 3.170. Substituting
PVA4 $6,000 and PVIFA10%,4yrs 3.170 into Equation 4.25 and solving for
PMT yield an annual loan payment of $1,892.74. Thus to repay the interest and
principal on a $6,000, 10%, 4-year loan, equal annual end-of-year payments of
$1,892.74 are necessary.
PV 4 N 10 I
1892.82 Calculator Use Using the calculator inputs shown at the left, you will find the
annual payment amount to be $1,892.82. Except for a slight rounding difference,
this value agrees with the table solution.
The allocation of each loan payment to interest and principal can be seen in
columns 3 and 4 of the loan amortization schedule in Table 4.8. The portion of
each payment that represents interest (column 3) declines over the repayment
period, and the portion going to principal repayment (...
View Full Document