Assume that you will have a 10-year, $10,000 loan to repay to your parents when
ID: 2382214 • Letter: A
Question
Assume that you will have a 10-year, $10,000 loan to repay to your parents when you graduate from college next month. The loan, plus 7 percent annual interest on the unpaid balance, is to be repaid in 10 annual installments of $1,424 each, beginning one year after you graduate. You have accepted a well-paying job and are considering an early settlement of the entire unpaid balance in just three years (immediately after making the third annual payment of $1,424).
Prepare an amortization schedule showing how much money you will need to save to pay your parents the entire unpaid balance of your loan three years after your graduation.
Assume that you will have a 10-year, $10,000 loan to repay to your parents when you graduate from college next month. The loan, plus 7 percent annual interest on the unpaid balance, is to be repaid in 10 annual installments of $1,424 each, beginning one year after you graduate. You have accepted a well-paying job and are considering an early settlement of the entire unpaid balance in just three years (immediately after making the third annual payment of $1,424).
Explanation / Answer
Year 1
Interest to to be paid = 10000 *0.08 = $800
Balance paid = $1490-$800 = $690
Remaining unpaid balance = $10000-$690 = $9310
Year 2
Interest to to be paid = 9310 *0.08 = $744.8
Balance paid = $1490-$744.8 = $745.2
Remaining unpaid balance = $9310-$745.2 = $8564.8
Year 3
Interest to to be paid = $8564.8 *0.08 = $685.18
Balance paid = $1490-$685.18 = $804.82
Remaining unpaid balance = $8564.8-$804.82= $7759.98