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3. Amortized Loan with Fixed Payment - Each payment covers the interest expense; plus, it reduces principal. Ex: Consider a 4-year loan with annual payments. The interest rate is 8% and the principal amount is $5,000. What is the annual payment? Use formula for PV of annuity. $5,000 = C[1 – 1 / 1.084] / .08. C = $1,509.60 ................
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