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Andrew borrows a certain amount of money at 7% effective. He will repay this loan by...

Andrew borrows a certain amount of money at 7% effective. He will repay this loan by making payments of 2000 at the end of each year for 15 years, using the amortization method.

Calculate the amount of principal repaid in the 4th payment.

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Answer #1

A. Calculation of Present Value (PV) of Annuity(A) :

PV = A * [{(1+rate)time-1}/{rate*(1+rate)time}]

PV = 2000 * [{(1+0.07)15-1}/{0.07*(1+0.07)15}]

PV = 18,215.83

B. Calculation of principal repaid in 4th payment :

Year Principal Outstanding
at the beginning		 Interest
@ 7%		 Instalment Principal Outstanding
at the end		 Principal paid in
current instalment
1 18215.23 1275.07 2000 17490.30 724.93
2 17490.30 1224.32 2000 16714.62 775.68
3 16714.62 1170.02 2000 15884.64 829.98
4 15884.64 1111.92 2000 14996.56 888.08
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