Robinson borrows a certain amount of money at 7% effective. He will repay this loan by...

Robinson borrows a certain amount of money at 7% effective. He will repay this loan by making payments of 2000 at the end of each year for 15 years, using the amortization method. Calculate the amount of principal repaid in the 4th payment.

Expert Solution

First, we calculate the amount borrowed.

Amount borrowed is calculated using PV function in Excel :

rate = 7% (rate of interest)

nper = 15 (number of years)

pmt = -2000 (Yearly payment. This is entered with a negative sign because it is a payment)

PV is calculated to be $18,215.83

Interest in any year = principal outstanding at beginning of year * 7%

Principal portion of yearly payment = yearly payment minus interest portion of payment

principal outstanding at end of year = principal outstanding at beginning of year minus principal portion of yearly payment

Amount of principal repaid in the 4th payment = $888.02

jeff jeffy answered 1 year ago

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