Type The Correct Answer In Each Box. Round Your Answers To The Nearest Cent, If Necessary.Laura Took Out A Loan Of $25,000 For A Term Of 60 Months (5 Years) At An Interest Rate Of 7.5%. Use The Amortization Table Provided To Complete The
Understanding Amortization
Amortization is the process of gradually paying off a loan through regular payments. It involves calculating the interest and principal components of each payment, which helps to reduce the outstanding balance over time. In this article, we will use an amortization table to calculate the loan payments for Laura's loan of $25,000.
Calculating Loan Payments
To calculate the loan payments, we need to use the following formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = monthly payment
- P = principal loan amount ($25,000)
- i = monthly interest rate (7.5%/year / 12 months/year = 0.00625)
- n = number of payments (60 months)
Plugging in the values, we get:
M = $25,000 [ 0.00625(1 + 0.00625)^60 ] / [ (1 + 0.00625)^60 – 1] M ≈ $458.19
Amortization Table
| Month | Payment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $458.19 | $143.19 | $315.00 | $24,685.00 |
| 2 | $458.19 | $141.95 | $316.24 | $24,368.76 |
| 3 | $458.19 | $140.72 | $317.47 | $24,051.29 |
| 4 | $458.19 | $139.50 | $318.69 | $23,732.60 |
| 5 | $458.19 | $138.29 | $319.90 | $23,412.70 |
| 6 | $458.19 | $137.09 | $321.10 | $23,091.60 |
| 7 | $458.19 | $135.90 | $322.29 | $22,769.31 |
| 8 | $458.19 | $134.72 | $323.47 | $22,445.84 |
| 9 | $458.19 | $133.55 | $324.64 | $22,121.20 |
| 10 | $458.19 | $132.39 | $325.80 | $21,795.40 |
| 11 | $458.19 | $131.24 | $326.95 | $21,468.45 |
| 12 | $458.19 | $130.10 | $328.09 | $21,140.36 |
| 13 | $458.19 | $128.97 | $329.22 | $20,811.14 |
| 14 | $458.19 | $127.85 | $330.34 | $20,480.80 |
| 15 | $458.19 | $126.74 | $331.45 | $20,149.35 |
| 16 | $458.19 | $125.64 | $332.55 | $19,816.80 |
| 17 | $458.19 | $124.55 | $333.64 | $19,483.16 |
| 18 | $458.19 | $123.47 | $334.72 | $19,148.44 |
| 19 | $458.19 | $122.40 | $335.79 | $18,812.65 |
| 20 | $458.19 | $121.34 | $336.85 | $18,475.80 |
| 21 | $458.19 | $120.29 | $337.90 | $18,137.90 |
| 22 | $458.19 | $119.25 | $338.94 | $17,799.96 |
| 23 | $458.19 | $118.22 | $339.97 | $17,460.99 |
| 24 | $458.19 | $117.20 | $340.99 | $17,120.00 |
| 25 | $458.19 | $116.19 | $342.00 | $16,778.00 |
| 26 | $458.19 | $115.19 | $343.00 | $16,435.00 |
| 27 | $458.19 | $114.20 | $343.99 | $16,091.01 |
| 28 | $458.19 | $113.22 | $344.97 | $15,746.04 |
| 29 | $458.19 | $112.25 | $345.94 | $15,400.10 |
| 30 | $458.19 | $111.29 | $346.90 | $15,053.20 |
| 31 | $458.19 | $110.34 | $347.85 | $14,705.35 |
| 32 | $458.19 | $109.40 | $348.79 | $14,356.56 |
| 33 | $458.19 | $108.47 | $349.72 | $14,006.84 |
| 34 | $458.19 | $107.55 | $350.64 | $13,656.20 |
| 35 | $458.19 | $106.64 | $351.55 | $13,304.65 |
| 36 | $458.19 | $105.74 | $352.45 | $12,952.20 |
| 37 | $458.19 | $104.85 | $353.34 | $12,598.86 |
| 38 | $458.19 | $103.97 | $354.22 | $12,244.64 |
| 39 | $458.19 | $103.10 | $355.09 | $11,889.55 |
| 40 | $458.19 | $102.24 | $355.95 | $11,533.60 |
| 41 | $458.19 | $101.39 | $356.80 | $11,176.80 |
| 42 | $458.19 | $100.55 | $357.64 | $10,819.16 |
| 43 | $458.19 | $99.72 | $358.47 | $10,460.69 |
| 44 | $458.19 | $98.90 | $359.29 | $10,101.40 |
| 45 | $458.19 | $98.09 | $360.10 | $9,741.30 |
| 46 | $458.19 | $97.29 | $360.90 | $9,380.40 |
| 47 | $458.19 | $96.50 | $361.69 | $9,018.71 |
| 48 | $458.19 | $95.72 | $362.47 | $8,656.24 |
| 49 | $458.19 | $94.95 | $363.24 | $8,293.00 |
| 50 | $458.19 | $94.19 | $363.99 | $7,929.01 |
| 51 | $458.19 | $93.44 | $364.75 | $7,564.26 |
| 52 | $458.19 | $92.70 | $365.49 | $7,198.77 |
| 53 | $458.19 | $91.97 | $366.22 | $6,832.55 |
| 54 | $458.19 | $91.25 | $366.94 | $6,465.61 |
| 55 | $458.19 | $90.54 | $367.65 | $6,097.96 |
| 56 | $458.19 | $89.84 | $368.35 | $5,729.61 |
| 57 | $458.19 | $89.15 | $369.04 | $5,360.57 |
| 58 | $458.19 | $88.47 | $369.72 | $4,990.85 |
| 59 | $458.19 | $87.80 | $370.39 | $4,620.46 |
| 60 | $458.19 | $87.14 | $371.05 | $4,249.41 |
Conclusion
Understanding Amortization
Amortization is the process of gradually paying off a loan through regular payments. It involves calculating the interest and principal components of each payment, which helps to reduce the outstanding balance over time. In this article, we will use an amortization table to calculate the loan payments for Laura's loan of $25,000.
Calculating Loan Payments
To calculate the loan payments, we need to use the following formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = monthly payment
- P = principal loan amount ($25,000)
- i = monthly interest rate (7.5%/year / 12 months/year = 0.00625)
- n = number of payments (60 months)
Plugging in the values, we get:
M = $25,000 [ 0.00625(1 + 0.00625)^60 ] / [ (1 + 0.00625)^60 – 1] M ≈ $458.19
Amortization Table
| Month | Payment | Interest | Principal | Balance |
|---|---|---|---|---|
| 1 | $458.19 | $143.19 | $315.00 | $24,685.00 |
| 2 | $458.19 | $141.95 | $316.24 | $24,368.76 |
| 3 | $458.19 | $140.72 | $317.47 | $24,051.29 |
| 4 | $458.19 | $139.50 | $318.69 | $23,732.60 |
| 5 | $458.19 | $138.29 | $319.90 | $23,412.70 |
| 6 | $458.19 | $137.09 | $321.10 | $23,091.60 |
| 7 | $458.19 | $135.90 | $322.29 | $22,769.31 |
| 8 | $458.19 | $134.72 | $323.47 | $22,445.84 |
| 9 | $458.19 | $133.55 | $324.64 | $22,121.20 |
| 10 | $458.19 | $132.39 | $325.80 | $21,795.40 |
| 11 | $458.19 | $131.24 | $326.95 | $21,468.45 |
| 12 | $458.19 | $130.10 | $328.09 | $21,140.36 |
| 13 | $458.19 | $128.97 | $329.22 | $20,811.14 |
| 14 | $458.19 | $127.85 | $330.34 | $20,480.80 |
| 15 | $458.19 | $126.74 | $331.45 | $20,149.35 |
| 16 | $458.19 | $125.64 | $332.55 | $19,816.80 |
| 17 | $458.19 | $124.55 | $333.64 | $19,483.16 |
| 18 | $458.19 | $123.47 | $334.72 | $19,148.44 |
| 19 | $458.19 | $122.40 | $335.79 | $18,812.65 |
| 20 | $458.19 | $121.34 | $336.85 | $18,475.80 |
| 21 | $458.19 | $120.29 | $337.90 | $18,137.90 |
| 22 | $458.19 | $119.25 | $338.94 | $17,799.96 |
| 23 | $458.19 | $118.22 | $339.97 | $17,460.99 |
| 24 | $458.19 | $117.20 | $340.99 | $17,120.00 |
| 25 | $458.19 | $116.19 | $342.00 | $16,778.00 |
| 26 | $458.19 | $115.19 | $342.99 | $16,435.00 |
| 27 | $458.19 | $114.20 | $343.99 | $16,091.01 |
| 28 | $458.19 | $113.22 | $344.97 | $15,746.04 |
| 29 | $458.19 | $112.25 | $345.94 | $15,400.10 |
| 30 | $458.19 | $111.29 | $346.90 | $15,053.20 |
| 31 | $458.19 | $110.34 | $347.85 | $14,705.35 |
| 32 | $458.19 | $109.40 | $348.79 | $14,356.56 |
| 33 | $458.19 | $108.47 | $349.72 | $14,006.84 |
| 34 | $458.19 | $107.55 | $350.64 | $13,656.20 |
| 35 | $458.19 | $106.64 | $351.55 | $13,304.65 |
| 36 | $458.19 | $105.74 | $352.45 | $12,952.20 |
| 37 | $458.19 | $104.85 | $353.34 | $12,598.86 |
| 38 | $458.19 | $103.97 | $354.22 | $12,244.64 |
| 39 | $458.19 | $103.10 | $355.09 | $11,889.55 |
| 40 | $458.19 | $102.24 | $355.95 | $11,533.60 |
| 41 | $458.19 | $101.39 | $356.80 | $11,176.80 |
| 42 | $458.19 | $100.55 | $357.64 | $10,819.16 |
| 43 | $458.19 | $99.72 | $358.47 | $10,460.69 |
| 44 | $458.19 | $98.90 | $359.29 | $10,101.40 |
| 45 | $458.19 | $98.09 | $360.10 | $9,741.30 |
| 46 | $458.19 | $97.29 | $360.90 | $9,380.40 |
| 47 | $458.19 | $96.50 | $361.69 | $9,018.71 |
| 48 | $458.19 | $95.72 | $362.47 | $8,656.24 |
| 49 | $458.19 | $94.95 | $363.24 | $8,293.00 |
| 50 | $458.19 | $94.19 | $363.99 | $7,929.01 |
| 51 | $458.19 | $93.44 | $364.75 | $7,564.26 |
| 52 | $458.19 | $92.70 | $365.49 | $7,198.77 |
| 53 | $458.19 | $91.97 | $366.22 | $6,832.55 |
| 54 | $458.19 | $91.25 | $366.94 | $6,465.61 |
| 55 | $458.19 | $90.54 | $367.65 | $6,097.96 |
| 56 | $458.19 | $89.84 | $368.35 | $5,729.61 |
| 57 | $458.19 | $89.15 | $369.04 | $5,360.57 |
| 58 | $458.19 | $88.47 | $369.72 | $4,990.85 |
| 59 | $458.19 | $87.80 | $370.39 | $4,620.46 |
| 60 | $458.19 | $87.14 | $371.05 | $4,249.41 |
Q&A
Q: What is amortization? A: Amortization is the process of gradually paying off a loan through regular payments.
Q: How do I calculate my loan payments? A: To calculate your loan payments, you need to use the following formula: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Q: What is the monthly payment for Laura's loan? A: The monthly payment for Laura's loan is $458.19.
Q: How long will it take to pay off Laura's loan? A: It will take 60 months to pay off Laura's loan.
**Q: What is the interest and principal components of