Solutions to Exploration 7.

1
1.
Table 7.X Amortization table for $15,000 car loan at 3.15% APR for 5 years

Month Principal Interest Payment (31st New loan

balance (Day accrued of month) balance (31st of
1) (During month) month)
1 $15,000 $39.38 $270.53 $14,768.85
2 $14,768.85 $38.77 $270.53 $14,537.08
3 $14,537.08 $38.16 $270.53 $14,304.71
… … … …

2. The series of equally spaced, equally sized monthly payments of $270.53 each act like an
annuity because they are fixed, level and governed by a fixed interest rate. Number of payments
is 60, Effective interest/period is 0.2625%, Payment/period is $270.53 and initial loan balance
(present value of the annuity) is $15,000.
3. $270.53
4. $270.5313887
5. Larger since the ‘extra’ in the payment size that’s not actually paying off the loan will
accumulate until the final payment.
6.

Balance Balance
Payment before Payment after
number payment size Interest Principal payment
… … … … … …
$1,342.15 $267.01 $1,075.14
56 $270.53 $3.52
$1,075.14 $270.53 $267.71 $807.44
57 $2.82
$807.44 $270.53 $268.41 $539.03
58 $2.12
$539.03 $270.53 $269.12 $269.91
59 $1.41
$269.91 $0.00
60 $269.91 $270.62 $0.71

7.

Balance Balance
Payment before Payment after
number payment size Interest Principal payment
… … … … … …
 $1,341.56 270.54 $3.52 $267.02 $1,074.54
56
$1,074.54 270.54 $2.82 $267.72 $806.82
57
$806.82 270.54 $2.12 $268.42 $538.40
58
$538.40 270.54 $1.41 $269.13 $269.27
59
$269.98 $0.00
60 $269.27 $269.27 $0.71

8. 48 payments left
9. $12,185.62
10. $12,185.62
11. $31.99
12. $31.99
13. $238.55
Solutions to Exploration 7.2
1. You could make regular (monthly) payments to an interest earning account for 5 years
and then hope to accumulate the $15000 (plus interest) needed to pay back the loan.
2. $17,555.10
3. $270.53/month.
4. Same as we got before
5. $12,185.62
6. $31.99
7. $269.27
8. $269.98