Question

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.

Answer 1

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