Question

In: Accounting

Given a loan with the following characteristics: Co = 50,000€ Annual effective interest 6% to be...

Given a loan with the following characteristics:

Co = 50,000€

Annual effective interest 6% to be amortized in 6 years, and knowing it is a level-fixed payment-rate loan.

Just before making the payment of the second annuity, it is decided to change the amortization method, starting to be amortized through constant principal repayments loan.

a) Outstanding debt just after making the payment of the 3th annuity

b) Amortization schedule for the last 3 years

Solutions

Expert Solution

a

Yearly payment = [P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount P $                                                            50,000
Rate of interest per period:
Annual rate of interest 6.000%
Frequency of payment = Once in 12 month period
Numer of payments in a year = 12/12 = 1
Rate of interest per period R 0.06 /1 = 6.0000%
Total number of payments:
Frequency of payment = Once in 12 month period
Number of years of loan repayment =                                                                          6
Total number of payments N 6 × 1 = 6
Period payment using the formula = [ 50000 × 0.06 × (1+0.06)^6] / [(1+0.06 ^6 -1]
Yearly payment = $                                                      10,168.13
Period Beginning liability Uniform monthly payment Interest owed Principal payment Total owed at end of month
N A C B= A* 0.060000 D=C-B E=A-D
1              50,000.00     10,168.13             3,000.00       7,168.13        42,831.87
2              42,831.87     10,168.13             2,569.91       7,598.22        35,233.65

Balance after second payment is $35,233.65

Third payment will consist of 35,233.65/3 = 11,744.55 principal

Outstanding debt then = 23,489.10

b

Period Beginning liability Payment Interest owed Principal payment Total owed at end of month
N A C B= A* 0.060000 D=C-B E=A-D
1              35,233.65     13,858.57             2,114.02     11,744.55        23,489.10
2              23,489.10     13,153.90             1,409.35     11,744.55        11,744.55
3              11,744.55     12,449.22                704.67     11,744.55                       -  

please rate.


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