Suppose Shin borrowed $70,000 on a student loan at a rate of 10% and must repay...

Suppose Shin borrowed $70,000 on a student loan at a rate of 10% and must repay it in 5 equal installments at the end of each of the next 5 years.

a. Construct an amortization schedule.

b. What is the annual interest expense for the borrower and the annual interest income for the lender during Year 4?

Expert Solution

a:

Instalment No	Opening balance	Payment	Interest component	Principal repaid
1	70000	$18,465.82	7000	$11,465.82
2	$58,534.18	$18,465.82	5853.417634	$12,612.41
3	$45,921.77	$18,465.82	4592.177032	$13,873.65
4	$32,048.12	$18,465.82	3204.81237	$15,261.01
5	$16,787.11	$18,465.82	1678.711241	$16,787.11

b: In year 4, interest = $3204.81

WORKINGS

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