Question

Find the payment amount p needed to amortize the given loan amount. Assume that a payment is made in each of the n compounding periods per year.

P=​$85,000

R= 5 %;

t=16 year

find ​yr, compounded annually

Answer 1

Following is the formula to calculate the payment amount per period -

P = p *[1-(1+ R/n) ^-(t*n)]/(R/n)

Where,

p = payment amount per period=?

P = Principal amount = $85,000

R = interest rate per period= 5%

n = total number of payments per year = 1 (As compounded annually)

t = total number of years = 16 year

Therefore,

$85,000 = p*[1- (1+ 5%/1) ^- (16*1)]/ (5%/1)

$85,000 = p*[1- (1+ 5%) ^- (16)]/ (5%)

p = $7,842.94

Therefore the payment amount p = $7,842.94 needed to amortize the given loan amount