a. Complete an amortization schedule for a $20,000 loan to be repaid in equal installments at the end of each of the next three years. The interest rate is 6% compounded annually. Round all answers to the nearest cent.
| Beginning | Repayment | Ending | |||
| Year | Balance | Payment | Interest | of Principal | Balance |
| 1 | $ | $ | $ | $ | $ |
| 2 | $ | $ | $ | $ | $ |
| 3 | $ | $ | $ | $ | $ |
b. What percentage of the payment represents interest and what percentage represents principal for each of the three years? Round all answers to two decimal places.
| % Interest | % Principal | |
| Year 1: | % | % |
| Year 2: | % | % |
| Year 3: | % | % |
c. Why do these percentages change over time?
- These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the remaining or outstanding balance declines.
- These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the remaining or outstanding balance declines.
- These percentages change over time because even though the total payment is constant the amount of interest paid each year is declining as the remaining or outstanding balance increases.
- These percentages change over time because even though the total payment is constant the amount of interest paid each year is increasing as the remaining or outstanding balance increases.
- These percentages do not change over time; interest and principal are each a constant percentage of the total payment
