Question

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years. How much would you still owe at the end of the second year, after you have made the second payment? Here we use an annual compounding. Hint: Amortization loan table.

Answer 1

Annual payment = [P x R x (1+R)^N]/[(1+R)^N-1]
Where,
P= Loan Amount
R= Interest rate per period
N= Number of periods
= [ $15000x0.085 x (1+0.085)^5]/[(1+0.085)^5 -1]
= [ $1275( 1.085 )^5] / [(1.085 )^5 -1
=$3806.49
Year	Beginning Balance	Interest	Payment	Ending Balance
a	b	c=b*8.5%	d	e=b+c-d
1	$                15,000.00	$ 1,275.00	$ 3,806.49	$        12,468.51
2	$                12,468.51	$ 1,059.82	$ 3,806.49	$           9,721.84
3	$                   9,721.84	$     826.36	$ 3,806.49	$           6,741.71
4	$                   6,741.71	$     573.05	$ 3,806.49	$           3,508.27
Correct Answer =$9721.84