Marshall recently obtained a 5-year, $50,000 loan. The loan carries 10 percent compound annual interest rate and calls for annual installment payments of at the end of each of the next 5 years. a. How much (in dollars) of the first year’s payment is principal? b. How much total interest will be paid over the life of the loan?

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Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.