Question

# Crab State Bank has offered you a \$1,250,000 5-year loan at an interest rate of 10.25...

Crab State Bank has offered you a \$1,250,000 5-year loan at an interest rate of 10.25 percent, requiring equal annual end-of-year payments that include both principal and interest on the unpaid balance. Develop an amortization schedule for this loan. Round your answers to the nearest dollar. End of Year Payment Interest (10.25%) Principal Reduction Balance Remaining 0 \$1,250,000 1 \$ \$ \$ 2 3 4 5

can you explain the steps please.

First of all lets find installment amount

Installment = Loan amount/PVIFA(r%,n)

here r = rate of interest = 10.25%

n = no. of years = 5 years

PVIF(YTM%,n)
PVIFA(YTM%,n) = [1-(1/(1+r)^n / r ]
PVIFA(15%,10) = [1-(1/(1+10.25%)^5 / 10.25%]
=[1-(1/(1+0.1025)^5 / 0.1025]
=[1-(1/(1.1025)^5 / 0.1025]
=[1-0.6139 / 0.1025]
=0.3861/0.1025
=3.7667
Thus Installment = 1250000/3.7667
= 3,31,855.47\$

Amortization schedule

 Towards Year Opening balance Installment Interest @ 10.25% Principal Closing balance A B C = A x 10.25% D = B-C E = A- D 1 1250000 331855 128125 203730 1046270 2 1046270 331855 107243 224613 821657 3 821657 331855 84220 247636 574021 4 574021 331855 58837 273018 301003 5 301003 331855 30853 301003 0

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