a. Prepare a loan amortization schedule for the first three payment periods.
b. How much interest will Skeeter pay, assuming he pays the loan off according to schedule?
c. How much will he owe immediately after making the thirteenth (13th) payment
There are several ways to approach this problem, but let’s assume you choose to solve for the maximum monthly payments he can withdraw during retirement, and compare that amount to the $10,000 desired withdrawal. Show work and explain.
Year 1 2 3 4 5
Incremental CFAT $12,500 $16,000 $28,600 $25,500 $33,000
Amount financed by Skeeter = $22000- $4000 = $18000
Monthly interest rate = 14.5%/12 =0.012083
Monthly installment (A) is given by
A/0.012083*(1-1/1.012083^24) = 18000
=> A =868.49
a) Loan Amortisation schedule is as given below
|Period||Loan At beginning of period||Interest on loan||Payment||Loan at end of period|
b) Total Amount paid on loan = 868.49*24 = $20843.75
So, Interest paid = 20843.75 -18000 = $2843.75
c) Loan Amount after 13th payment = vaue of loan remaining loan (11 payments)
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