Question

You took a 5 year, $100,000 loan. The loan has equal principal payments. The loan carries a 6% annual interest rate and is paid back in annual payments.

1. What is the outstanding balance of the loan after 3 years?

2. Compute an amortization table for the loan.

3. What is the interest payment on the fourth installment?

Answer 1

Working note:

Using financial calculator BA II Plus - Input details:	#
I/Y = Rate/Frequency =	6.000000
FV = Future value =	$0
N = Total payment term x Frequency =	5
PV = Present value of Loan =	-$100,000.00
CPT > PMT = Payment =	$23,739.64
Alternate formula-based method:
PMT = Payment = |PV| x R% x (1+R%)^N / ((1+R%)^N - 1)	$23,739.64

Amortization table:

Year	Beginning Balance	Payment	Interest	Repayment of principal	Ending balance
Y	OP	PMT	I = OP x Rate	AM = PMT - I	CB = OP - AM
1	$100,000.00	$23,739.64	6,000.00	$17,739.64	$82,260.36
2	82,260.36	$23,739.64	4,935.62	$18,804.02	63,456.34
3	63,456.34	$23,739.64	3,807.38	$19,932.26	43,524.08
4	43,524.08	$23,739.64	2,611.44	21,128.20	22,395.89
5	22,395.89	$23,739.64	1,343.75	22,395.89	-

1. What is the outstanding balance of the loan after 3 years?

Answer: Please check the amortization table for 3 years Outstanding Balance which is = $43,524.08

2. Compute an amortization table for the loan.

Year	Beginning Balance	Payment	Interest	Repayment of principal	Ending balance
Y	OP	PMT	I = OP x Rate	AM = PMT - I	CB
1	$100,000.00	$23,739.64	6,000.00	$17,739.64	$82,260.36
2	82,260.36	$23,739.64	4,935.62	$18,804.02	63,456.34
3	63,456.34	$23,739.64	3,807.38	$19,932.26	43,524.08
4	43,524.08	$23,739.64	2,611.44	21,128.20	22,395.89
5	22,395.89	$23,739.64	1,343.75	22,395.89	-

3. What is the interest payment on the fourth installment?

Answer: Please check amortization table Interest column which is = $2,611.44