Question

UNA 1 WUestion 4 You contract a loan of 90.0000AED on 4 years. The interest rate is 6% compounded annually. Construct an amortization schedule for the loan repayment. (5 Marks)

Answer 1

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

900000= Cash Flow*((1-(1+ 6/100)^-4)/(6/100))

Cash Flow = 259732.34

	Annual rate(M)=	yearly rate/1=	6.00%	Annual payment=	259732.34
Year	Beginning balance (A)	Annual payment	Interest = M*A	Principal paid	Ending balance
1	900000.00	259732.34	54000.00	205732.34	694267.66
2	694267.66	259732.34	41656.06	218076.28	476191.37
3	476191.37	259732.34	28571.48	231160.86	245030.51
4	245030.51	259732.34	14701.83	245030.51	0.00

Where

Interest paid = Beginning balance * Annual interest rate

Principal = Annual payment – interest paid

Ending balance = beginning balance – principal paid

Beginning balance = previous Year ending balance