Suppose the loan in Example 3.4 is repaid by 12 level quarterly payments at rate j.02. Find the total amount of interest paid over the course of the loan. This total is larger than the total in Ex- ample 3.4. Provide a non-algebraic justification for this by general reasoning. 196 CHAPTER 3 34 (Loan with level payments of principal) EXA 3000 at an effective quarterly interest rate of j-.02 is amor- after the of 250 of 3 tized by means of 12 quarterly payments, beginning one quarter loan is made. Each payment consists of a principal repayment an plus interest due on the previous quarter's outstanding balance. Construct the amortization schedule. SOLUTION With an initial outstanding balance of L OBo 3000, we have interest due at the end of the first quarter of amount /-3000(02) 60. Since the principal paid in the first payment is PR 250, the total amount o the first payment is K-1+PR 310. Then .--PRI-3000-250 2750. Table 3.5 gives the full amortization schedule, where t counts quarters. TABLE 3.5 t Payment Interest Due Principal Repaid Outstanding Balance 2 305 3 300 4 295 5 290 6 285 7 280 8 275 9 270 50 45 40 35 30 25 20 15 10 250 250 250 250 250 250 250 250 250 250 250 2500 2250 2000 1750 1500 1250 1000 750 500 250 10 265 260 12 255