Question

A local organization borrows $1,000, and the loan is to be repaid in 6 equal payments...

A local organization borrows $1,000, and the loan is to be repaid in 6 equal payments at each of the next 6 years with monthly compounding. The lender is charging a 12 percent annual interest rate on the loan. Calculate the monthly payment and construct the amortization table for the first three months only.

Homework Answers

Answer #1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]
C = Cash flow per period
i = interest rate
n = number of payments
1000= Cash Flow*((1-(1+ 12/1200)^(-6*12))/(12/1200))
Cash Flow = 19.55
Monthly rate(M)= yearly rate/12= 1.00% Monthly payment= 19.55
Month Beginning balance (A) Monthly payment Interest = M*A Principal paid Ending balance
1 1000.00 19.55 10.00 9.55 990.45
2 990.45 19.55 9.90 9.65 980.80
3 980.80 19.55 9.81 9.74 971.06
Where
Interest paid = Beginning balance * Monthly interest rate
Principal = Monthly payment – interest paid
Ending balance = beginning balance – principal paid
Beginning balance = previous Month ending balance
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