Question

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Amortization Schedules This project requires you to create an amortization schedule for two types of loans,...

Amortization Schedules

This project requires you to create an amortization schedule for two types of loans, a fully amortizing

constant payment mortgage (CPM) loan and a constant amortizing (CAM) loan. In your report, compare

the amortization schedule of the CPM and CAM loans (How are they similar? How are they different?

Which would you prefer and why?)

Part 1: Monthly Payment

Consider a $10,000 loan made at a 12 percent annual (nominal) rate of interest for 3 years.

A) Calculate the constant monthly mortgage payments on this loan, assuming it is to be fully

amortized at the end of 3 years. Be sure to use the excel PMT function to calculate the monthly

payment (see https://support.office.com/en-us/article/PMT-function-0214da64-9a63-4996-

bc20-214433fa6441) (10 Points)

Part 2: CPM Loan

Consider a $10,000 fully amortizing CPM loan made at a 12 percent annual (nominal) rate of interest for

3 years.

B) Fill in the amortization schedule for each month (calculate or fill in the values of beginning loan

balance, monthly payment, interest, amortization, and ending loan balance). Be sure to show

calculations if needed (i.e. do not simply type in values but reference other cells to compute the

calculations) (30 points)

Part 3: CAM Loan

Consider a $10,000 CAM loan made at a 12 percent annual (nominal) rate of interest for 3 years.

C) Fill in the amortization schedule for each month (calculate or fill in the values of beginning loan

balance, monthly payment, interest, amortization, and ending loan balance). Be sure to show

calculations if needed (i.e. do not simply type in values but reference other cells to compute the

calculations) (30 points)

Excel Note: If you want to lock in a cell reference, use the $ symbol. For example, if you would like to keep

the value of cell A5 constant for use in a formula, reference it as $A$5. See https://support.office.com/enus/article/Switch-between-relative-absolute-and-mixed-references-dfec08cd-ae65-4f56-839e5f0d8d0baca9

Part 1: A) Monthly payme

Loan amount =
nominal rate =
number of yrs =
periodic rate =

number of periods=

Monthly payment =

Part 2: B) Amortization scheduled CPM

monthly beginning loan balance monthly payment Intrest Amortization ending loan balance

Part 3. C ) Amortization schedule CAM

monthly beginning loan balance Intrest Amortization Monthly payment ending loan balance

Solutions

Expert Solution

Part 1 Loan $10000
Interest Rate 12%
No of Yrs 3 yrs
Using the PMT function in excel we get
Monthly Rate 12/12 1%
NPER 3*12 36
PV 10000
The constant monthly mortgage payments on this loan is $332.14
Part 2 Loan $10000
Monthly Interest Rate 1%
No of yrs 3 yrs
NPER 36
Months Beginning Loan Balance Monthly Payment Interest(Beginning Loan Balance * 1%) Amortization(monthly Payment - Interest) Ending Loan Balance(Beginning Loan Balance - Amortization)
1                  10,000.00      332.14           100.00                       232.14                    9,767.86
2                     9,767.86      332.14             97.68                       234.46                    9,533.40
3                     9,533.40      332.14             95.33                       236.81                    9,296.59
4                     9,296.59      332.14             92.97                       239.17                    9,057.42
5                     9,057.42      332.14             90.57                       241.57                    8,815.85
6                     8,815.85      332.14             88.16                       243.98                    8,571.87
7                     8,571.87      332.14             85.72                       246.42                    8,325.45
8                     8,325.45      332.14             83.25                       248.89                    8,076.56
9                     8,076.56      332.14             80.77                       251.37                    7,825.19
10                     7,825.19      332.14             78.25                       253.89                    7,571.30
11                     7,571.30      332.14             75.71                       256.43                    7,314.88
12                     7,314.88      332.14             73.15                       258.99                    7,055.88
13                     7,055.88      332.14             70.56                       261.58                    6,794.30
14                     6,794.30      332.14             67.94                       264.20                    6,530.11
15                     6,530.11      332.14             65.30                       266.84                    6,263.27
16                     6,263.27      332.14             62.63                       269.51                    5,993.76
17                     5,993.76      332.14             59.94                       272.20                    5,721.56
18                     5,721.56      332.14             57.22                       274.92                    5,446.63
19                     5,446.63      332.14             54.47                       277.67                    5,168.96
20                     5,168.96      332.14             51.69                       280.45                    4,888.51
21                     4,888.51      332.14             48.89                       283.25                    4,605.25
22                     4,605.25      332.14             46.05                       286.09                    4,319.17
23                     4,319.17      332.14             43.19                       288.95                    4,030.22
24                     4,030.22      332.14             40.30                       291.84                    3,738.38
25                     3,738.38      332.14             37.38                       294.76                    3,443.62
26                     3,443.62      332.14             34.44                       297.70                    3,145.92
27                     3,145.92      332.14             31.46                       300.68                    2,845.24
28                     2,845.24      332.14             28.45                       303.69                    2,541.55
29                     2,541.55      332.14             25.42                       306.72                    2,234.83
30                     2,234.83      332.14             22.35                       309.79                    1,925.04
31                     1,925.04      332.14             19.25                       312.89                    1,612.15
32                     1,612.15      332.14             16.12                       316.02                    1,296.13
33                     1,296.13      332.14             12.96                       319.18                        976.95
34                        976.95      332.14                9.77                       322.37                        654.58
35                        654.58      332.14                6.55                       325.59                        328.98
36                        328.98      332.14                3.29                       328.85                             0.13
Part 3 Under CAM loan, monthly principal payment would be 10000/36 which would be 277.78
Months Beginning Loan Balance Monthly Payment(Interest + Constant amortization) Interest(Beginning Loan Balance * 1%) constant Amortization Ending Loan Balance(Beginning Loan Balance - Amortization)
1                  10,000.00      377.78           100.00                       277.78                    9,722.22
2                     9,722.22      375.00             97.22                       277.78                    9,444.44
3                     9,444.44      372.22             94.44                       277.78                    9,166.66
4                     9,166.66      369.45             91.67                       277.78                    8,888.88
5                     8,888.88      366.67             88.89                       277.78                    8,611.10
6                     8,611.10      363.89             86.11                       277.78                    8,333.32
7                     8,333.32      361.11             83.33                       277.78                    8,055.54
8                     8,055.54      358.34             80.56                       277.78                    7,777.76
9                     7,777.76      355.56             77.78                       277.78                    7,499.98
10                     7,499.98      352.78             75.00                       277.78                    7,222.20
11                     7,222.20      350.00             72.22                       277.78                    6,944.42
12                     6,944.42      347.22             69.44                       277.78                    6,666.64
13                     6,666.64      344.45             66.67                       277.78                    6,388.86
14                     6,388.86      341.67             63.89                       277.78                    6,111.08
15                     6,111.08      338.89             61.11                       277.78                    5,833.30
16                     5,833.30      336.11             58.33                       277.78                    5,555.52
17                     5,555.52      333.34             55.56                       277.78                    5,277.74
18                     5,277.74      330.56             52.78                       277.78                    4,999.96
19                     4,999.96      327.78             50.00                       277.78                    4,722.18
20                     4,722.18      325.00             47.22                       277.78                    4,444.40
21                     4,444.40      322.22             44.44                       277.78                    4,166.62
22                     4,166.62      319.45             41.67                       277.78                    3,888.84
23                     3,888.84      316.67             38.89                       277.78                    3,611.06
24                     3,611.06      313.89             36.11                       277.78                    3,333.28
25                     3,333.28      311.11             33.33                       277.78                    3,055.50
26                     3,055.50      308.34             30.56                       277.78                    2,777.72
27                     2,777.72      305.56             27.78                       277.78                    2,499.94
28                     2,499.94      302.78             25.00                       277.78                    2,222.16
29                     2,222.16      300.00             22.22                       277.78                    1,944.38
30                     1,944.38      297.22             19.44                       277.78                    1,666.60
31                     1,666.60      294.45             16.67                       277.78                    1,388.82
32                     1,388.82      291.67             13.89                       277.78                    1,111.04
33                     1,111.04      288.89             11.11                       277.78                        833.26
34                        833.26      286.11                8.33                       277.78                        555.48
35                        555.48      283.33                5.55                       277.78                        277.70
36                        277.70      280.56                2.78                       277.78

                          -0.08

Under constant payment mortgage that a constant amount is calculated on the original loan amount which is at fixed rate, for fixed time period, the amortization amount varies each month while in constant amortization payment the amortization amount remains constant over the period and the interest is calculated differently on the balance remaining after deducting the amortization of loan while in both the loans the amount of loan equals zero.


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