In: Finance
Answer:
Amount borrowed = $20,000
Annual rate = 6%
Payable in 6 equal installments at the end of each year
Annual payment = (P * R * (1+ R) ^N) / ((1+R)^N-1)
where:
P = Amount borrowed
R = Periodic Interest
N = number of installments
Annual payment = (20000 * 6% * (1 +6%) 6) / ((1 + 6%) 6 - 1)
= $4067.252569
This can also be calculated through excel formula PMT.
=PMT (6%, 6, -20000, 0, 0)
= $4067.252569
To get amount outstanding at the end of second year we have to calculate present value of remaining annual installments.
Number of remaining installments at the end 2nd year = 4
PV = Annual payment * (1 - 1 /(1 + interest rate) Number of years) / Interest rate
= 4067.252569 * (1 - 1 /(1 + 6%) 4) / 6%
= $14093.46
Alternately using excel, we get = PV (6%, 4, -4067.252569, 0,0) = $14093.45
Hence:
Amount you still owe at the end of the second year, after you make the second payment = $14,093.46