This exercise is designed to be solved using technology such as calculators or computer spreadsheets. You...

This exercise is designed to be solved using technology such as calculators or computer spreadsheets.

You borrow $18,000 with a term of four years at an APR of 8%. Make an amortization table. How much equity have you built up halfway through the term? (Round your answer to two decimal places.)

Solutions

Expert Solution

The following table captures the entire cash flow during the 48 months

		Month	Payment	Interest Paid	Principal Paid	Balance
Original Principal	18000	0				18000
Loan term (Yrs)	4	1	439.4326021	$120.00	$319.43	$17,680.57
APR	8%	2	439.4326021	$117.87	$321.56	$17,359.01
Payments per Yr	12	3	439.4326021	$115.73	$323.71	$17,035.30
		4	439.4326021	$113.57	$325.86	$16,709.44
Instalment	$439.43	5	439.4326021	$111.40	$328.04	$16,381.40
		6	439.4326021	$109.21	$330.22	$16,051.18
		7	439.4326021	$107.01	$332.42	$15,718.75
		8	439.4326021	$104.79	$334.64	$15,384.11
		9	439.4326021	$102.56	$336.87	$15,047.24
		10	439.4326021	$100.31	$339.12	$14,708.12
		11	439.4326021	$98.05	$341.38	$14,366.74
		12	439.4326021	$95.78	$343.65	$14,023.09
		13	439.4326021	$93.49	$345.95	$13,677.14
		14	439.4326021	$91.18	$348.25	$13,328.89
		15	439.4326021	$88.86	$350.57	$12,978.32
		16	439.4326021	$86.52	$352.91	$12,625.41
		17	439.4326021	$84.17	$355.26	$12,270.14
		18	439.4326021	$81.80	$357.63	$11,912.51
		19	439.4326021	$79.42	$360.02	$11,552.50
		20	439.4326021	$77.02	$362.42	$11,190.08
		21	439.4326021	$74.60	$364.83	$10,825.25
		22	439.4326021	$72.17	$367.26	$10,457.98
		23	439.4326021	$69.72	$369.71	$10,088.27
		24	439.4326021	$67.26	$372.18	$9,716.09
		25	439.4326021	$64.77	$374.66	$9,341.44
		26	439.4326021	$62.28	$377.16	$8,964.28
		27	439.4326021	$59.76	$379.67	$8,584.61
		28	439.4326021	$57.23	$382.20	$8,202.41
		29	439.4326021	$54.68	$384.75	$7,817.66
		30	439.4326021	$52.12	$387.31	$7,430.34
		31	439.4326021	$49.54	$389.90	$7,040.44
		32	439.4326021	$46.94	$392.50	$6,647.95
		33	439.4326021	$44.32	$395.11	$6,252.84
		34	439.4326021	$41.69	$397.75	$5,855.09
		35	439.4326021	$39.03	$400.40	$5,454.69
		36	439.4326021	$36.36	$403.07	$5,051.62
		37	439.4326021	$33.68	$405.76	$4,645.87
		38	439.4326021	$30.97	$408.46	$4,237.41
		39	439.4326021	$28.25	$411.18	$3,826.22
		40	439.4326021	$25.51	$413.92	$3,412.30
		41	439.4326021	$22.75	$416.68	$2,995.61
		42	439.4326021	$19.97	$419.46	$2,576.15
		43	439.4326021	$17.17	$422.26	$2,153.89
		44	439.4326021	$14.36	$425.07	$1,728.82
		45	439.4326021	$11.53	$427.91	$1,300.91
		46	439.4326021	$8.67	$430.76	$870.15
		47	439.4326021	$5.80	$433.63	$436.52
		48	439.4326021	$2.91	$436.52	($0.00)

The monthly payment is calculated as the excel formula PMT(8%/12, 4*12, -18000)

The Interest paid is calculated as IPMT(8%/12, i, 4*12, -18000) where i denotes the months from 1 to 48.

The Principal paid is calculated as PPMT(8%/12, i, 4*12, -18000)

The Balance is calculated as the successive reductions of Principa oaid from the original principal.

Thus, the equity built to 24 months can be calculated now. $9,716.09 is the balance after 24 months, with an initial value of $18,000. Thus the equity built is $18,000 - $9,716.09 = $8283.91

milcah answered 1 year ago

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