D. Amortizing Loan (25 points) On Jan. 1, 2012, you signed a loan agreement with

Question

D. Amortizing Loan (25 points) On Jan. 1, 2012, you signed a loan agreement with the bank. The facts are as follows: Principal Interest rate Term Loan type $20,000 5% 4 years Amortizing 1. Complete the loan amortization table in the space provided below (round to the nearest dollar). Annual Remaining Date Payment Interest Principa! Balance 12/31/12 12/31/13 12/31/14 12/31/15 2. How would the remaining balance of the loan be reflected on the balance sheet as of December 31, 2014 (tick one)? Long-term debt Short-term borrowing * Principal = Prt (1-1/(1+r)1/r) (as covered in class on April 20). Round to the nearest dollar

Explanation / Answer

Calculation of Annual payment towards loan We can use the present value of annuity formula to calculate the Annual loan payment amount PV of annuity = P {[1-(1+r)^-n]/r} PV of annuity = Principal = $20000 P = Annual payment = ? r = rate of interest per annum = 5% n = no.of years = 4 20000 = P {[1-(1+0.05)^-4]/0.05} 20000 = P*3.545951 P = 5640.24 Annual Payment = $5640 Answer 1 Loan Amortization Table Date Annual Payment Interest Principal Remaining Balance 01/01/2012 $20,000 31/12/2012 $5,640 $1,000 $4,640 $15,360 31/12/2013 $5,640 $768 $4,872 $10,488 31/12/2014 $5,640 $524 $5,116 $5,372 31/12/2015 $5,640 $268 $5,372 $0 Answer 2 Remaining balance of the loan be reflected on the balance sheet as of December 31,2014 as Short term borrowing - $5372

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