Question

Barandon wants to borrow $10000 to purchase a motor bikes.He's going to repay the loan by making equal annual payments for five years with 14% interest per year on the loan.you need to prepare an amortiation schedule for the loan and how much total ionterest will brandon have to pay over the life of the loan?

Answer 1

Year	Principal	Interest @ 14%	Annual Installment	Ending Balance
0	$          10,000.00	$                         -	$                         -	$          10,000.00
1	$            1,512.84	$            1,400.00	$            2,912.84	$            8,487.16
2	$            1,724.64	$            1,188.20	$            2,912.84	$            6,762.52
3	$            1,966.09	$                946.75	$            2,912.84	$            4,796.43
4	$            2,241.34	$                671.50	$            2,912.84	$            2,555.09
5	$            2,555.13	$                357.71	$            2,912.84	$                  (0.04)

*$(0.04) is rounding difference which can be adjusted from the final installment interest portion. ($357.71 + $0.04 = $357.75); then the principal repayment in final installment becomes $2,555.09 and thus the loan will be closed without any rounding difference.

Total interest Brandon has to pay over the life of the loan = $1,400.00 + $1,188.20 + $946.75 + $671.50 + $357.71 = $4,564.16

• Annual installment:

  • Principal amount (A)	$ 10,000.00
    PVAF (5 years, 14%) (B)	3.43308
    Annual installment(A) ÷ (B)	$    2,912.84

• PVAF: Present value of annuity factor. This can be found from the PVAF table. Else, the formula is:
  • 
  • r = interest rate; n = number of years
• Interest paid: Interest on the ending balance of immediately preceding year @ 14%;
  • For instance, Interest portion in first installment = $10,000 × 14% = $1400
• Principal paid: Annual installment amount (-) Interest portion
  • For instance, Principal repaid in first payment = $2,912.84 - $1,400 = $1,512.84
• Ending balance: Principal outstanding at the end of the year, i.e. Previous ending balance (-) principal repaid during the year.