Question

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Prepare an amortization schedule for a five-year loan of $60,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments (Do not round intermediate calculations and round your answers to 2 decimal places, e.g. 32.16. Leave no cells blank - be certain to enter "0" wherever required.) Year Beginning Balance Total Payment Interest Payment Principal Payment Ending Balance b. How much interest is paid in the third year? (Do not found intermediate calculations and round your answer to 2 decimal places, .9.. 32.16.) c. How much total interest is paid over the life of the loan? (Do not found intermediate calculations and round your answer to 2 decimal places, ... 32.16. b. Interest paid in third year c. Interest and over the We of loan

Answer 1

AMORTIZATION SCHEDULE

b crax 9% d=b- c a -d Year Beginning balance Total payment Interest payment Principal payment Ending balance 1 $ 60,000.00 $ 15,425.55 $ 5,400.00 $ 10,025.55 $ 49,974.45 2 $ 49,974.45 $ 15,425.55 $ 4,497.70 $ 10,927.85 $ 39,046.60 3 $ 39,046.60 $ 15,425.55$ 3,514.19 $ 11,911.36 $ 27,135.24 4 $ 27,135.24 $ 15,425.55 $ 2,442.17 $ 12,983.38 $ 14,151.87 5 $ 14,151.87 $ 15,425.55 $ 1,273.67 $ 14,151.88 $ (0.02)

b. Interest paid in the third year: $3,514.19

c. Interest paid over the life of loan:

Year Interest payment 1 $ 5,400.00 2 $ 4,497.70 3 $ 3,514.19 4 $ 2,442.17 5 $ 1,273.67 $ 17,127.73 Total

Work

Annual payments:

• The annual loan repayments are the annuities. Therefore, find the annuities.
• Present value of annuity = loan amount = $60,000
• Present value of annuity = Annuity × PVAF
  • Annuity = Present value of annuity ÷ PVAF = $60,000 ÷ 3.88965 = $15,425.55
  • Present value of annuity factor:
    • 
      1- (1 + r)-n PVAF = • r = interest rate per period = 9% • n = number of periods = 5 years PVAF = 1- (1 + 0.09)-5 -= 3.88965 0.09