Amortization Worksheet
This worksheet focuses on understanding amortization schedules, calculating loan payments, and analyzing the impact of interest on loans.
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Amortization Worksheet
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Read each question carefully and answer to the best of your ability. Show all your work for calculations.
1. An amortization schedule shows how a loan is paid off over time, detailing each and the breakdown of principal and interest.
2. As a loan is amortized, the portion of each payment applied to the increases, while the portion applied to decreases.
3. The total amount paid over the life of a loan is the sum of the original principal and the accumulated .
4. Which of the following best describes the principal portion of a loan payment?
The extra money charged for borrowing
The initial amount borrowed
The portion of the payment that reduces the loan balance
The total cost of the loan
5. What is the primary benefit of an amortization schedule for a borrower?
It allows them to skip payments
It shows exactly how much is owed at any point
It reduces the interest rate
It guarantees a lower monthly payment
6. Explain the difference between a fixed-rate loan and an adjustable-rate loan in the context of amortization.
7. A student takes out a loan of $10,000 at an annual interest rate of 5%, compounded annually, with a 5-year term. If the annual payment is $2,309.75, calculate the amount of interest paid in the first year.
8. The total amount of interest paid on a loan decreases with each subsequent payment if the interest rate remains constant.
True
False
9. Making extra payments on a loan can reduce the total interest paid over the life of the loan.
True
False
10. Consider a loan of $20,000 with an annual interest rate of 6%, compounded monthly, over a 3-year term. Calculate the monthly loan payment and create a partial amortization schedule for the first three months, showing the beginning balance, monthly payment, interest paid, principal paid, and ending balance for each month.