In: Finance
Consider a loan for $100,000 to be repaid in equal installments at the end of each of the next 5 years. The interest rate is 6% compounded annually. What is the remaining balance of the loan after 2 years?
Solution
Present value of annuity=Annuity payment*((1-(1/(1+i)^m))/i)
where
i-discount or intrest rate per period-6%
m-number of periods =5
Present value of annuity =100000
Annuity payment =?
Putting values in formula
Present value of annuity=Annuity payment*((1-(1/(1+.06)^5))/.06)
Solving we get annuity payment=$23,739.64
Now making amortization table
Formula used
Thus as it can be seen remaining balance after 2 years=$63,456.34
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