Question

Assume that someone borrows $5,000 at an interest rate of 9 percent per year for five years and agrees to make interest and principal payments in the amount of $1285.46 at the end of each year. Prepare a loan amortization schedule for each of the five years, showing the beginning principal balance, the total payment of $1285.46, the interest component of the payment, the principal component of the payment, and the ending balance. Fill in the blank spaces in the following framework to complete. **Please show work**

Year	Beginning Balance	Total Payment	Interest Paid	Principal Paid	Ending Balance
1	$5,000	$1285.46	?	?	?
2	?	$1285.46	?	?	?
3	?	$1285.46	?	?	?
4	?	$1285.46	?	?	?
5	?	$1285.46	?	?	?
Total		$6427.30	?	$5,000

Answer 1

Discount factor = [( 1 + i)ⁿ - 1 ] / [i (1 + i)ⁿ]

Substituting values from above as i = 9% annually, n = 5 years, we get discount factor = 3.8

Now, Total Payment = Amount borrowed / Discount factor = 5000 / 3/8 = $1285.46 (approx) as given

The interest paid is = 0.09 X 5000 = $450 and then carrying out similar activity to calculate interest as the beginning balance changes every year

Principal paid = Total payment - Interest paid

Ending balance = Beginning balance - prinicipal paid

year	Beginning Balance	Total Payment	Interest Paid	Principal Paid	Ending Balance
1	$5000	$1285.46	$450	$835.46	$4164.54
2	$4164.54	$1285.46	$374.80	$910.65	$3253.89
3	$3253.89	$1285.46	$292.85	$992.60	$2261.28
4	$2261.28	$1285.46	$203.51	$1081.94	$1179.33
5	$1179.33	$1285.46	$106.14	$1179.31	$0
Total		$6427.30		$5000