Question

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.

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