Access an online loan calculator with annual payments, such as the one at mycalc
ID: 2797200 • Letter: A
Question
Access an online loan calculator with annual payments, such as the one at mycalculators.com, to produce an amortization schedule for Welton Corp.'s installment note that has original principal of $22,000, interest of 12% compounded annually, and a term of 3 years. (a) What is the annual payment? (b) Of this amount, how much represents interest in year 1? (c) How much principal is included in the year 1 payment? (d) How much interest is included in the year 2 payment? (Round your answers to the nearest whole dollar amount.) (a) Annual payment (b) Interest year 1 (c) Principal year 1 (d) Interest year 2 (e) Over time, has the interest become a smaller or larger component of the annual payment? Smaller LargerExplanation / Answer
a.Annual Payment (Refer Working Note)
Year Annual Payment
1 $9,160
2 $9,160
3 $9,160
b.Interest of Year 1 (Refer Working Note)
$2,640
c.Principal Inculded in Year 1 (Refer Working Note)
$6,520
d.Interest Included in Year 2 Payment (Refer Working Note)
$1,858
A.Working Note
a b c=(a+b) d e=d-b f=c-d
Year Opening Balance Interest@12% Total Installment Principal Closing Balance
1 $22,000 $2,640 $24,640 $9,160 $6,520 $15,480
2 $15,480 $1,858 $17,338 $9,160 $7,302 $8,178
3 $8,178 $981 $9,160 $9,160 $8,179 Nil
B.Calculations
1.Installment=Loan Amount/PVAF(12%,3Years)
Installment=$22,000/(1+.12)3
PV=$22,000/2.40183
PV=$9,160
(e)Interest has become smaller component of the annual payment over the time, as is evident from the above computation.