Question

Prepare an amortization schedule for a three-year loan of $100,000. The interest rate is 8% per year, and the loan calls for equal annual payment.

How much is the annual total loan payment?

How much interest is paid in the first year?

How much total interest is paid over three years?

Answer 1

Solution:

Loan amount =$1,00,000

Rate of interest =8%

Annuity = Present value / PVAF @8%,3 years

Annuity= 1,00,000/2.5771= $38,803.31

Amortization schedule

Year	Opening balance	Annual payment	Interest	Principal paid	Closing balance
1	1,00,000	38,803.31	8000	30,803.31	69,196.69
2	69,196.69	38,803.31	5,535.74	33,267.57	35,929.12
3	35,929.12	38,803.31	2,874.33	35,928.98	0(approx)

Annual loan payment= $38,803.31

Interest paid in first year = $8,000

Total interest paid over three years= $8000 + $5535.74 + $2874.33= $16,410.07