Question

loan Consolidated Incorporated​ (LCI) is offering a special​ one-time package to reduce Custom​ Autos' outstanding bills to one​ easy-to-handle payment plan. LCI will pay off the current outstanding bills of ​$248 comma 000 for Custom Autos if Custom Autos will make an annual payment to LCI at an interest rtae of 8​% over the next 5 years.   a.  What are the annual payments of the​ loan? b.  What is the amortization schedule for this loan if Custom Autos wants to pay off the loan before the loan maturity in 5 ​years? c.  When will the balance be half paid​ off?   d.  What is the total interest expense on the loan over the 5 ​years? a. What is the annual payment of the​ loan?

Answer 1

We will use excel to prepare an amortization schedule as per workings in image below

a: Annual payment = $62113.20

b:

Loan Amount	Interest Rate	Term in Years	Annual Payment
$248,000.00	8.000%	5	$62,113.20
Year	StartingBalance	Interest	Principal	EndingBalance	TotalInterest
1	$248,000.00	$19,840.00	$42,273.20	$205,726.80	$19,840.00
2	$205,726.80	$16,458.14	$45,655.06	$160,071.74	$36,298.14
3	$160,071.74	$12,805.74	$49,307.46	$110,764.28	$49,103.88
4	$110,764.28	$8,861.14	$53,252.06	$57,512.22	$57,965.03
5	$57,512.22	$4,600.98	$57,512.22	$0.00	$62,566.00

c: Balance is almost half paid after third year. (Ending balance is 110764 after 3rd payment)

d: Total interest = $62566

WORKINGS