Question

Susana takes out a $1,000 loan. The loan carries a 10% annual interest rate and it will be amortized with fixed annual payments over a five-year period. Construct the amortization schedule for this loan? What is the fraction of the fixed payment represent the repayment of principal in year 2? Assume Annual Compounding

1. Show Formula
2. Find Annual Payment
3. Create Amortization Table
4. Show fraction of the fixed payment represents the repayment of principal in year 2

Answer 1

Yearly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                              1,000
Rate of interest per period:
Annual rate of interest		10.000%
Frequency of payment	=	Once in 12 month period
Numer of payments in a year	=	12/12 =	1
Rate of interest per period	R	0.1 /1 =	10.0000%
Total number of payments:
Frequency of payment	=	Once in 12 month period
Number of years of loan repayment	=	5.00
Total number of payments	N	5 × 1 =	5
Period payment using the formula	=	[ 1000 × 0.1 × (1+0.1)^5] / [(1+0.1 ^5 -1]
Yearly payment	=	$                                                            263.80

Period	Beginning liability	Uniform monthly payment	Interest owed	Principal payment	Total owed at end of month
N	A	C	B= A* 0.100000	D=C-B	E=A-D
1	1,000.00	263.80	100.00	163.80	836.20
2	836.20	263.80	83.62	180.18	656.03
3	656.03	263.80	65.60	198.19	457.83
4	457.83	263.80	45.78	218.01	239.82
5	239.82	263.80	23.98	239.82	0.00

Fraction = 180.18/263.80 = 0.683013