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A borrower borrows on a five year loan $5,000 from a bank at 10% and will...

A borrower borrows on a five year loan $5,000 from a bank at 10% and will pay back the loan in five equal $ payments (annually) at the end of each time period. How much is each equal payment, how much principal and interest is paid back, and how much interest is paid back?  

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Answer #1

Ans:Amount of each equal installment = Loan Amount/ PVAF(10%, 5)

                                                        = 5000/3.79 = $ 1319

Note: PVAF= Present Value annuity factor= 3.79(it is derived from annuity table)

Principal Paid back = $ 5000

Interest is paid back = $ 1319*5 -5000 = $ 1595

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