Question

You plan to take a personal loan of Rs.50,000 at a rate of 12% per annum to buy a computer. The loan is to be paid in 5 equal quarterly installments, the first of which is to be paid at the time of buying and rest four at end of each quarter henceforth.

1. What is the installment amount?

2. Prepare the amortization schedule.

Answer 1

PVAnnuity Due = c*((1-(1+ i/(f*100))^(-n*f))/i)*(1 + i/(f*100))

C = Cash flow per period

i = interest rate

n = number of payments I f = frequency of payment

50000= Cash Flow*((1-(1+ 12/400)^(-1.25*4))/(12/400))*(1+12/400)

Cash Flow = 10599.74

Using Calculator : Press buttons : "2ND"+"PMT"+"2ND"+"ENTER"+"2ND"+"CPT" then assign

PV =-50000

	Quarterly rate(M)=	yearly rate/4=	3.00%	Quarterly payment=	10599.74
Quarter	Beginning balance (A)	Quarterly payment	Interest = M*A	Principal paid	Ending balance
1	39400.26	10599.74	1182.01	9417.73	29982.53
2	29982.53	10599.74	899.48	9700.26	20282.27
3	20282.27	10599.74	608.47	9991.27	10291.01
4	10291.01	10599.74	308.73	10291.01	0.00

Where

Interest paid = Beginning balance * Quarterly interest rate

Principal = Quarterly payment – interest paid

Ending balance = beginning balance – principal paid

Beginning balance = previous Quarter ending balance