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Prepare an amortization schedule for a five-year loan of $73,000. The interest rate is 9 percent...

Question:

Prepare an amortization schedule for a five-year loan of $73,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16)

How much total interest is paid over the life of the loan? Include how you got the answers.

Year/Beginning Balance/Total Payment/Interest Payment/Principal Payment/Ending Balance (for years 1 - 5)

Amortized Loan Payment:

An amortized loan payment refers to periodic payments of interest and principal. The computation for such a loan depends upon whether or not it's an equal annual payment, equal principal payment, or equal interest payment. In this case, the problem requires an equal annual payment. When computing for the amortization schedule, take note of the following formulas:

  • Annual Total Payment = Loan Amount * Capital Recovery Factor (CRF)
  • CRF = ( i ( 1 + i ) ^ n ) / ( ( 1 + i ) ^ n - 1 ) where:
    • i = interest rate
    • n = number of years
  • Interest Payment = Beginning Balance * Interest Rate
  • Principal Payment = Annual Total Payment - Interest Payment
  • Ending Balance = Beginning Balance - Principal Payment

Answer and Explanation:

Using the formulas listed above, you can follow this step-by-step process for performing the calculations.

1. First, compute for the annual total...

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Loan Types: Pure Discount, Interest-Only & Amortization

from Finance 101: Principles of Finance

Chapter 6 / Lesson 6
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