Question

In: Finance

The amount of a loan is $100,000 with an interest rate of 8%. The life of...

The amount of a loan is $100,000 with an interest rate of 8%. The life of the loan is 4 years. Create a loan amortization table.

Expert Solution

Assumption: The equal payment(PMT) towards the Loan is an annual Payment

PMT formula = Present Value / [ 1- ( 1+r)^-n]/ r

Annual payment =100000 / ((1-(1.08)^-4) /0.08)

Annual payment =100000 / (0.26497014) /0.08)

Annual payment =100000 / 3.31212684)

30192.08

Explanation:

Year 1

i) Interest payment will be (rate) * (principal)

8% * 100000 = 8000

ii) Annual Payment - interest portion = Payment towards principal

30192.08 - 8000 = 22192.08

iii) Ending balance of principal = Beginning Principal Balance - payment towards Principal for that year

100000 - 22192.08 = 77807.92

Year 2

i) Interest payment will be (rate) * (principal)

Interest portion 8% * 77807.92 (remaining principal) = 6224.63

ii) Annual Payment - interest portion = Payment towards principal

30192.08 - 6224.63 = 23967.45

iii) Ending balance of principal = Beginning Principal Balance - payment towards Principal for that year

77807.92 - 23967.45 = 53840.47

and so on for the next 2yrs

Yearbeginning balance Principal Ending balance 77807.92 53840.47 27955.6:3 0.00 Interest PaidPrincipal Paid PMT 30192.08 30192.08 30192.08 30192.08 1 100000 8000.00 6224.63 4307.24 2236.45 22192.08 23967.45 25884.84 27955.6:3 2 4

jeff jeffy answered 2 years ago

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