Question

you borrowed $500,000 at an interest rate od 2,6% with constant annual payments of both principal and interest over 15 years. what is your annual payment? what is the pitstanding balance after 3 years?

Answer 1

We have to use the formula to find the annual payment=Loan payment*annual interest*[((1+annual interest)^n)/(((1+annual interest)^n)-1)]

Loan amount=$500,000

interest rate=2.6%

n=total number of periods=15

Annual payment=500,000*2.6%*[((1+2.6%)^15)/(((1+2.6%)^15)-1)]=13,000*1.469638/0.469638=$40,680.89

==>We can also find the annual payment using PMT function in EXCEL

=PMT(rate,nper,pv,fv,type)

=PMT(2.6%,15,-500000,0,0)

PMT=$40,680.89

Annual payment=$40,680.89

b. The amortixation schedule has been provided below with formuas and the end of the balance at year3 is the outstanding amount=$414,779.52

Periods	Opening balance	Annual payment	Interest=(Opening balance*2.6%)	Principal=annual payment-Interest	Ending balance=Opening balance-principal
1	500000.00	40680.89	13000.00	27680.89	472319.11
2	472319.11	40680.89	12280.30	28400.59	443918.52
3	443918.52	40680.89	11541.88	29139.01	414779.52