question archive A debt of $4000 is to be amortized by equal payments at the end of every quarter for 1

A debt of $4000 is to be amortized by equal payments at the end of every quarter for 1

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A debt of $4000 is to be amortized by equal payments at the end of every quarter for 1.5 years. If
the interest charged is 12% compounded quarterly, find the principal after each payment is made. Also
calculate the total amount of interest pad in this contract.

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  • Calculate quarterly payment for debt as shown below:            
                     
    Quarterly payment Debt amount/(1-(1+r^-n)/r)            
    Quarterly rate 3.00% 12%/4            
    No of payments 6 1.5*4            
                     
    Quarterly payment 4000/(1-(1.03^-6)/0.03)            
    Quarterly payment 4000/5.4172              
    Quarterly payment 738.39              
                     
    Prepare amortization table as shown below:              
    Period Quarterly payment Interest   Principal   Loan balance    
    1 $738.39 $120.00 4000*3% $618.39 738.39-120 $3,381.61 4000-618.39
    2 $738.39 $101.45 3381.61*3% $636.94 738.39-101.45 $2,744.67 3381.61-636
    3 $738.39 $82.34 2744.67*3% $656.05 738.39-82.34 $2,088.62 2744.67-656
    4 $738.39 $62.66 2088.62*3% $675.73 738.39-62.66 $1,412.89 2088.62-675
    5 $738.39 $42.39 1412.89*3% $696.00 738.39-42.39 $716.88 1412.89-696
    6 $738.39 $21.51 716.88*3% $716.88 738.39-21.51 $0.00 716.88-716
        $430.34            
                     
    Thus, total interest paid is $430.34