Question

Fully amortized loan​ (annual payments for principal and interest with the same amount each​ year). Chuck Ponzi has talked an elderly woman into loaning him ​$50 comma 000 for a new business venture. She​ has, however, successfully passed a finance class and requires Chuck to sign a binding contract on repayment of the ​$50 comma 000 with an annual interest rate of 11​% over the next 10 years. Determine the cash flow to the woman under a fully amortized​ loan, in which Ponzi will make equal annual payments at the end of each year so that the final payment will completely retire the original ​$50 comma 000 loan. What is the amount of payment that the woman will receive at the end of years 1 through 10​? ​$ nothing  ​(Round to the nearest​ cent.)

Answer 1

Hello

FULLY AMORTISED LOAN

Present Value = $50,000

Future Value = $0

Rate = 11%

Periods = 10 years

USING EXCEL FORMULA, "=PMT(11%,10,50000,0,0)", we get the amount of repayment each year = $8490.07

The following is the schedule of payment :

Time period	Payment	Payment towards interest	Payment towards principal	Remaining Principal
$50,000.00	$8,490.07	$               5,500.00	$                2,990.07	$47,009.93
$47,009.93	$8,490.07	$               5,171.09	$                3,318.98	$43,690.95
$43,690.95	$8,490.07	$               4,806.00	$                3,684.07	$40,006.89
$40,006.89	$8,490.07	$               4,400.76	$                4,089.31	$35,917.57
$35,917.57	$8,490.07	$               3,950.93	$                4,539.14	$31,378.44
$31,378.44	$8,490.07	$               3,451.63	$                5,038.44	$26,340.00
$26,340.00	$8,490.07	$               2,897.40	$                5,592.67	$20,747.33
$20,747.33	$8,490.07	$               2,282.21	$                6,207.86	$14,539.46
$14,539.46	$8,490.07	$               1,599.34	$                6,890.73	$   7,648.73
$   7,648.73	$8,490.07	$                   841.36	$                7,648.71	$           0.02

I hope this solves your doubt.

Do give a thumbs up if you find this helpful.