Question

95,000 I How much interest will you pay in the 12th year of a 343,00 S.5%, as year mortgage, assuming annual compounding? 3,909,842 3815.028 3735.363 3622. 79/ sis

Answer 1

We have to first identify the Annual Payment that is to be made every year towards repayment. The same can be found out using the PMT function is MS Excel. The PMT function will give you the exact annual installment amount to be repaid.

Formula for PMT function is =PMT(rate,tenor,minus principal,0). The detailed workings is as below

	B	C
1	Loan Amount	$             95,000.00
2	Interest p.a	5.50%
3	Tenor (Period)	25
4	Annual Payments	$7,082.19	This is arrived at based on the formula given below
	Formula for calculating annual payments	=PMT(rate,tenor,minus principal,0)
	Formula for calculating annual payments	=PMT(C2,C3,-C1,0)

So we now know your annual payment is $7082.19. This payment includes your principal and interest amount. Prepare another table in excel bifurcating the principal and interest amount to be paid every year. Interest amount is 5.5% of the principal outstanding every year and the difference between the interest amount and $7082.19 every year shall be the principal amount being repaid. The table so derived is detailed below. The formulas are mentioned in the top column for reference.

A	B	C	D	E
Year	Annual Payment	Interest ( Previous Principal Balance (E)* 5.5%)	Principal Portion (Annual Payment (B) - Interest (C))	Principal Balance (Previous Principal Balance (E) - Annual Payment in Current year (B))
0	-	-	-	95,000
1	7,082.19	5,225.00	1,857.00	93,143.00
2	7,082.19	5,122.87	1,959.00	91,184.00
3	7,082.19	5,015.12	2,067.00	89,117.00
4	7,082.19	4,901.44	2,181.00	86,936.00
5	7,082.19	4,781.48	2,301.00	84,635.00
6	7,082.19	4,654.93	2,427.00	82,208.00
7	7,082.19	4,521.44	2,561.00	79,647.00
8	7,082.19	4,380.59	2,702.00	76,945.00
9	7,082.19	4,231.98	2,850.00	74,095.00
10	7,082.19	4,075.23	3,007.00	71,088.00
11	7,082.19	3,909.84	3,172.00	67,916.00
12	7,082.19	3,735.38	3,347.00	64,569.00

In this table, check for the interest amount being paid in the 12th year. As per the table it is $3735.38. hence the answer is $ 3735.363.