Question

Set up an amortization schedule for a $25000 loan to be repaid in equal installment at the end of each 3 years. The interest rate is 10% compounded annually. What percentage of the payment represents interest and what percentage represents principal for each three years?

Answer 1

Answer:

we must first determine the annual payment:

annual payment = present value / annuity factor

present value = $25,000

PV annuity factor, 10%, 3 periods = 2.4869

annual payment = $25,000 / 2.48685 = $10,052.87

year       payment     interest paid       principal paid       ending balance

1          $10,052.87      $2,500              $7,552.87             $17,447.13

2         $10,052.87      $1,744.71           $8,308.16              $9,138.97

3         $10,052.87      $913.90             $9,138.97              $0

in percentages:

year       payment     interest paid       principal paid    

1               100%            25%                        75%

2              100%        17.36%                   82.64%

3              100%         9.09%                   90.91%