Question

You plan to borrow $35,000 at an 8% semiannual interest rate. It is a 3 year loan that requires 6 payments to fully amortize.

a) Calculate the amount of semiannual payment you would be making every period?

b) Set-up an amortization schedule.

Answer 1

a)

The amount of semi-annual payment is found using the following equation

The amount of semi-annual payment made every period = $ 6676.67

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b)

The amortization schedule can be built using excel.

Interest for each period = ( 0.08 2) Beginning balance

Principal amount paid for each period = Semi-annual payment - interest

Ending balance for each period = Beginning balance - principal paid

Period	Beginning balance	Semi-annual payment	Interest	Principal paid	Ending balance
1	$35,000	$6,676.67	$1,400	$5,276.67	$29,723.33
2	$29,723.33	$6,676.67	$1,189	$5,487.74	$24,235.59
3	$24,235.59	$6,676.67	$969	$5,707.25	$18,528.35
4	$18,528.35	$6,676.67	$741	$5,935.54	$12,592.81
5	$12,592.81	$6,676.67	$504	$6,172.96	$6,419.85
6	$6,419.85	$6,676.67	$257	$6,419.88	($0.02)

The formulas used to build the schedule in excel is shown in the following table.