An important application of interest involves amortized loans. Some common types of amortized loans are automobile loans, home mortgage loans, and business loans. Each loan payment consists of interest and repayment of principal. This breakdown is often developed in an amortization schedule. Interest is in the first period and over the life of the loan, while the principal repayment is in the first period and it thereafter.
You need $13,000 to purchase a used car. Your wealthy under is willing to lend you the money as an amortized loan. He would like you to make annual payments for 6 years, with the first payment to be made one year from today. He requires a 8% annual return.
a. What will be your annual loan payments? Round your answer to the nearest cent. Do not round intermediate calculators.
b. How much of your first payment will be applied to interest and to principal repayment?
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