Mr Echo obtains an installment loan to purchase a collection

Mr. Echo obtains an installment loan to purchase a collection of figurines that he plans to sell in his store. The loan is $1,200.00 for 12 months at 6.00% interest. Use the monthly Payment plans table in item 16 to calculate the monthly payment then use the repayment Schedule below to help you calculate the balance of the loan over time. What is the balance of Mr. Echo\'s loan after three payments?

Solution

Present value of monthly payments is equal to the loan amount

let X be the monthly payment

X * [1 - (1+6%/12)^-12]/6%/12 = 1200

X = 103.28

the repayment schedule for first 3 payments is

	Beginning Balance	Interest	Principal	Ending Balance
1	$1,200.00	$6.00	$97.28	$1,102.72
2	$1,102.72	$5.51	$97.77	$1,004.95
3	$1,004.95	$5.02	$98.26	$906.70