Question

Consider this incomplete amortization schedule for a five-year loan of $71,500. The interest rate (r) is 7 percent compounded annually, and the loan calls for equal annual payments at the end of each year, starting with year 1. Answer all of the following questions based on this information. Quantity Year 0 ye 1 2 3 4 5 BOP Balance NA Loan Payment NA Interest portion NA Amortization NA EOP Balance $71,500

Answer 1

Step 1:

Calculation of Annual Payment of loan

Loan Amount =PV = $71,500

n = loan term = 5 years

r = interest rate = 7%

Annual Installment Payment of loan = [r*PV] / [1- (1+r)^-n]

= [7% * $71,500] / [1 - (1+7%)^-5]

= $5,005 / [1 - 0.71298617948]

= $5,005 / 0.28701382051

= $17,438.1846526

= $17,438.18

Therefore, Anuual Installment payment of loan is $17,438.18

Step 2:

Amortization Schedule

BOP balance in Year 2 = $59,066.82

Interest portion of loan payment in year 2 = $4,134.68

Amortization amount in year 2 = $13,303.50

EOP balance in Year 2 = $45,763.32

EOP balance in year 5 = $0