Question

Amortization Schedule

Consider a $50,000 loan to be repaid in equal installments at the end of each of the next 5 years. The interest rate is 9%.

1. Set up an amortization schedule for the loan. Round your answers to the nearest cent. Enter "0" if required

   Year	Payment	Repayment Interest	Repayment of Principal	Balance
   1	$	$	$	$
   2	$	$	$	$
   3	$	$	$	$
   4	$	$	$	$
   5	$	$	$	$
   Total	$	$	$

   
   
2. How large must each annual payment be if the loan is for $100,000? Assume that the interest rate remains at 9% and that the loan is still paid off over 5 years. Round your answer to the nearest cent.
   $  
   
3. How large must each payment be if the loan is for $100,000, the interest rate is 9%, and the loan is paid off in equal installments at the end of each of the next 10 years? This loan is for the same amount as the loan in part b, but the payments are spread out over twice as many periods. Round your answer to the nearest cent.
   $  
   
   Why are these payments not half as large as the payments on the loan in part b?
   -Select-VIVIIIIIIItem 26
   I. Because the payments are spread out over a longer time period, less interest is paid on the loan, which raises the amount of each payment.
   II. Because the payments are spread out over a longer time period, less interest is paid on the loan, which lowers the amount of each payment.
   III. Because the payments are spread out over a shorter time period, more interest is paid on the loan, which lowers the amount of each payment.
   IV. Because the payments are spread out over a longer time period, more interest must be paid on the loan, which raises the amount of each payment.
   V. Because the payments are spread out over a longer time period, more principal must be paid on the loan, which raises the amount of each payment.

Answer 1

a. Using excel formula to calculate amortisation table

Period	Beginning Balance=50000	Payment=PMT(9%,5,-50000)	Reayment of Interest=9%*Beginning Principal	Repayment of Principal = PMT-Interest	Balance= Beginning balance-Principal part of PMT
1	50000.00	12854.62	4500.00	8354.62	41645.38
2	41645.38	12854.62	3748.08	9106.54	32538.84
3	32538.84	12854.62	2928.50	9926.13	22612.71
4	22612.71	12854.62	2035.14	10819.48	11793.23
5	11793.23	12854.62	1061.39	11793.23	0.00
	Total	64273.11	14273.11	50000.00

b. PV of Loan =100000
Rate =9%
Number of years =5
Annual Payment =PV/((1-(1+r)^-n)/r) =100000/((1-(1+9%)^-5)/9%)=25709.25

c. PV of Loan =100000
Rate =9%
Number of years =10
Annual Payment =PV/((1-(1+r)^-n)/r) =100000/((1-(1+9%)^-10)/9%)=15582.01

d. Option IV is correct option.