Amortization Schedule: a. Set up a schedule for a 25,000 loan to be repaid in eq

Question

Amortization Schedule:

a. Set up a schedule for a 25,000 loan to be repaid in equal instalments at the end of each of the next five years. The intrest rate is 10%.

b. How large must each annual payment be if the loan is for 50,000? Assume that the intrest rate remains at 10% and the loan is still payed off over 5 years

c. How large must each payment be if the loan is for 50,000, the intrest rate is 10%, and the loan is payed of in equal instalments at the end of each of the next ten years? This loan is for the same amount as the loan in part b, but the payments are spread out over twise as many periods. Why are these payments not half as large as the payments on the loan in part b?

Explanation / Answer

use PMT function in Excel

b,

c.

use PMT function in Excel to determine the payments

Year Beg Balance Total Pmt Interest Principal Paid End Balance 1 25,000 6,594.94 2,500.00 4,094.94 20,905.06 2 20,905 6,594.94 2,090.51 4,504.43 16,400.63 3 16,401 6,594.94 1,640.06 4,954.87 11,445.76 4 11,446 6,594.94 1,144.58 5,450.36 5,995.40 5 5,995 6,594.94 599.54 5,995.40 0.00

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