Question

Prepare an amortization schedule for a five-year loan of $38,000. The interest rate is 7% per year, and the loan calls for equal annual payments. (Do not round intermediate calculations. Enter all amount as positive value. Round the final answers to 2 decimal places. Leave no cells blank - be certain to enter "0" wherever required.) Beginning Total Payment Interest Payment Principal Payment Ending Balance Year Balance Nm in How much interest is paid in the third year? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Interest paid $ How much total interest is paid over the life of the loan? (Do not round intermediate calculations. Round the final answer to 2 decimal places.) Total interest

Answer 1

	Let us first calculate annual installment amount
	Annual Installment Amount   = [P x R x (1+R)^N]/[(1+R)^N-1]
	Where,
	P= Loan Amount
	R= Interest rate per period
	N= Number of periods
	= [ $38000x0.07 x (1+0.07)^5]/[(1+0.07)^5 -1]
	= [ $2660( 1.07 )^5] / [(1.07 )^5 -1
	=$9267.85
	Amortization shedule
	Year	Beginning Balance	Total Payment	Interest Payment	Principal payment	Ending Balance
	1	$               38,000.00	$                  9,267.85	$                        2,660.00	$           6,607.85	$              31,392.15
	2	$               31,392.15	$                  9,267.85	$                        2,197.45	$           7,070.40	$              24,321.75
	3	$               24,321.75	$                  9,267.85	$                        1,702.52	$           7,565.33	$              16,756.42
	4	$               16,756.42	$                  9,267.85	$                        1,172.95	$           8,094.90	$                8,661.52
	5	$                 8,661.52	$                  9,267.85	$                            606.31	$           8,661.54	$                       -0.02
	Interest paid in third year = 1702.52
	Total Interest paid = 8339.23
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