Question

2. To illustrate with the simplest case of annual payments, suppose you borrow $22,000 at 12 percent compound annual interest to be repaid over the next six years. Equal installment payments are required at the end of each year. In addition, these payments must be sufficient in amount to repay the $22,000 together with providing the lender with a 12 percent return. Please determine the annual payment, and amortization schedule.

Answer 1

Calculation of Annual payment is below

Annual Payment =   R*P/ (1- (1+R)^{^-N})

Where

R = Rate of Interest

P = Principal

N = No of Years

= (0.12*22000)/ (1- (1+0.12)^{^-6}

Annual Payment =5351

Amortisation Table
Year	Opening Balance	Interest @ 12%	Principal	Closing Year
1	22,000	2,640	2,711	19,289
2	19,289	2,315	3,036	16,253
3	16,253	1,950	3,401	12,852
4	12,852	1,542	3,809	9,043
5	9,043	1,085	4,266	4,777
6	4,777	573	4,778	0