Project 2 — Amortization Tables
February 12, 2002
In this activity you will create what is known as an Amortization Table. The idea is simple. You buy a car or a
house. Based on the amount of the loan and the interest rate, you then compute your monthly payment. You
then create a table which details the progress of the loan. Columns in the table track several important categories:
1. the payment number,
2. the amount of the payment credited to lowering the principal balance,
3. the amount of the payment goes for interest,
4. the cumulative payment amount toward the principal balance,
5. the cumulative interest, and
6. the principal balance.
The rows of the table list these details for each payment made. For example, suppose that
1. the amount of the loan is $100,000,
2. the yearly rate is 8%,
3. the payments are monthly, and
4. the loan is over a period of 30 years (360 monthly payments).
A simple mathematical formula determines that the monthly payments are $733.76. Here are a few rows of the
amortization table for this loan.
Interest Cum Prin Cum Int Prin Bal
Table 1: Amortization Table.
Your job in this activity will be to produce all 360 rows of the amortization table. Of course, if you perform
the task correctly, the principal balance at the end should total $0.00.
2 Mathematical Background
Of course, you need to know a little mathematics before your begin your project. We start with a little lesson on
2.1 Compound Interest
Suppose that you invest $1,000 at 8% yearly interest, compounded quarterly. This means that the interest on
the investment is computed four times per year. Of course, you do not get the full 8% each compounding period.
Rather, you are awarded 8%/4, or 2% each compounding period. This means that at the end of each compounding
period, your investment is increased by 102%.
Let A(k) represent the amount of the inv