Question

Your firm just acquired a bank loan in the amount of $30,000 at 6% APR. Equal payments are to be made annually at the end of each year for three years. Construct the amortization table.

Year#

Owed

Annual Payment

Principal Reduction

Interest

New Principal

1

$30,000.00

2

3

Total

Answer 1

Loan Amortization Table

Year	Amount Owed	Annual Equal Payments	Interest at 6%	Principal Repayment	Ending Balance
1	$30,000.00	$11,223.29	$1,800.00	$9,423.29	$20,576.71
2	$20,576.71	$11,223.29	$1,234.60	$9,988.69	$10,588.01
3	$10,588.01	$11,223.29	$635.28	$10,588.01	$0

Annual Equal Payment

Interest Rate (r) = 6% per year

Number of Periods = 3 Years

Annual Equal Payment = [P x {r (1+r)ⁿ} ] / ( 1+r)ⁿ – 1

= [$30,000 x {0.06 x (1 + 0.06)³}] / (1 + 0.06)⁶ - 1

= [$30,000 x {0.06 x 1.191016}] / [1.191016 – 1]

= [$30,000 x 0.071461] / 0.1910160

= $11,223.29 per year