Question

A loan of $500 000, repayable in constant installments over 4 years, with a nominal annual interest rate of 20% with semiannual capitalization.

It is intended to fill in the map related to the amortization of the loan assuming the SAC.

Answer 1

Since the present value of the loan is 500000 and the annual interest rate is 20%, for a semi-annual period, it will be 10%. Hence, assuming the installment as A, we write the equation:

500000 = A/1.1 + A/1.1^2 + ... + A/1.1^8

A = 93720.71.

This will be the annual payment. To make the amortization schedule, we will keep on decreasing the interest portion each year from A and that will give us the principal and then we will decrease this principal payment from the 500000 each year. The map related to the amortization schedule hasn't been provided but if implemented using the process described above, it will definitely result in 0 amount remaining at the end.