Crab State Bank has offered you a $500,000 5-year loan at an interest rate of 9.

Question

Crab State Bank has offered you a $500,000 5-year loan at an interest rate of 9.25 percent, requiring equal annual end-of-year payments that include both principal and interest on the unpaid balance. Develop an amortization schedule for this loan. Round your answers to the nearest dollar. Do not round intermediate calculations.

End of Year Payment Interest (9.25%) Principal Reduction Balance Remaining 0 - - - $500,000 1 $   $   $        2                     3                     4                     5                    

Explanation / Answer

Year Opening Balance Installment Closing balance total Interest capital 1    500,000.00    129,381.14    46,250.00      83,131.14     416,868.86 2    416,868.86    129,381.14    38,560.37      90,820.77     326,048.09 3    326,048.09    129,381.14    30,159.45      99,221.69     226,826.40 4    226,826.40    129,381.14    20,981.44    108,399.70     118,426.70 5    118,426.70    129,381.17    10,954.47    118,426.70                      -   Calculation of installement amount PV = $ 500,000.00 n = 5 years r = 9.25% P = ? PV = P((1-(1+r)^-n)/r)    500,000.00 = P((1-(1+.0925)^-5)/r) P = 129,381.17

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