Cathy Cortez-Ochoa borrowed $4,000 from her uncle who amortized the loan at 4.5% over 3 months. Using Table 14-1, the first two monthly payments are $1,343.35 each. (The last payment may be slightly different.) Complete the amortization schedule and solve the effective rate problem.

Amortized Loan

a loan in which the principal and interest are paid down over time through fixed monthly payments.

Effective Rate

The effective rate, often referred to as the effective annual rate, is the interest rate on a loan or financial product re-compounded on a yearly basis.

Amortization Schedule

An amortization schedule is a table detailing each periodic payment on an amortizing loan, illustrating how the principal amount is reduced over time.