Author Question: Complete the equal-payments three-year amortization table. Year Beginning Principal Payment ... (Read 173 times)

dalyningkenk · **on:** Jul 10, 2018

Complete the equal-payments three-year amortization table.

Year Beginning Principal Payment Interest Expense Principal Reduction Ending Principal
1 6,000.00 480.00 4,151.80
2 2,328.20 1,996.06
3 2,155.74
What will be an ideal response?

Question 2

As the discount rate increases without limit, the present value of the future cash inflows:

A) Gets larger without limit.
B) Stays unchanged.
C) Approaches zero.
D) Gets smaller without limit, i.e. approaches minus infinity.

kbennett34 · **Reply #1 on:** Jul 10, 2018

Answer to Question 1

Answer:
Year Beginning Principal Payment Interest Expense Principal Reduction Ending Principal
1 6,000.00 2,328.20 480.00 1,848.20 4,151.80
2 4,151.80 2,328.20 332.14 1,996.06 2,155.74
3 2,155.74 2,328.20 172.46 2,155.74 0.00

There is more than one way to complete the table, but here is one solution. BP second year is equal to the EP from the first year. All three payments are equal to 2,328.20. The interest expense in year two is the difference between the year two payment and the principal reduction. The EP in year two is equal to the BP in year three. The principal reduction in year three is equal to the BP in year three. The interest expense in year three is the difference between the year three payment and the principal reduction. The EP in year three is 0.00. The annual interest expense may also be found by dividing the first year's interest expense by the BP to determine that the annual interest rate is 8. You can then multiply the rate by the BP to determine the annual interest expense for years two and three.

Answer to Question 2

C