Equal principal payments

[ec1c173]

Hi, i am currently taking finance 301 for my university requirement class... and i have a homework assignment due tomorrow, i need to some on one of the question i have been stuck on...can anyone teach me how to do it step by step?? thanks!

You need $25,000 today and have decided to take out a loan at 7 percent for
two years. Which one of the following loans would be the least expensive? Assume all
loans require quarterly payments and that interest is compounded on a quarterly basis.
1) Amortized loan with equal principal payments
2) Amortized loan with equal payments

 

[Denis]

You will see a simple example here :
http://www.ext.colostate.edu/PUBS/farmmgt/03757.html

Scroll down a bit: you'll see a $10,000 loan over 8 years, annual payments, using both methods.

Is that enough?

"Least expensive" is bad terminology here; "lesser total interest" would be more appropriate; why?
In the example, equal principal = $2450 as 1st payment; the equal payment = $2013.
Now, what if you're able to invest the difference of $437 at a higher rate?!

I'll let TK comment on that :wink: