Prepare an amortization schedule for a three-year loan of $114,000. The interest
ID: 2642611 • Letter: P
Question
Prepare an amortization schedule for a three-year loan of $114,000. The interest rate is 11 percent per year, and the loan calls for equal annual payments. How much total interest is paid over the life of the loan? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16). Leave no cells blank. You must enter '0' for the answer to grade correctly.)
Prepare an amortization schedule for a three-year loan of $114,000. The interest rate is 11 percent per year, and the loan calls for equal annual payments. How much total interest is paid over the life of the loan? (Enter rounded answers as directed, but do not use rounded numbers in intermediate calculations. Round your answers to 2 decimal places (e.g., 32.16). Leave no cells blank. You must enter '0' for the answer to grade correctly.)Explanation / Answer
Amortization Table:
Calculations:
Step 1: Calculate Total Annual Payment
You first need to determine the annual payment (comprising of interest and principal payment). For this, we will use present value formula and calculate P. The formula to be used is:
Present Value (Loan Amount) = P*[((1-(1+r)^-n)/r] where P in annual payment, r is rate of interest and n is years.
Substituting values from the question:
114,000 = P*[((1-(1+11%)^-3)/11%]
Solving for P, we get Annual Payment as = 114,000/2.44 = $46,650.29
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Step 2: Calculate Annual Interest and Principal Payments
Interest payment will be calculated on the balance amount of principal for each year. That is after deducting the amount of payment towards principal. For Year 1, it will be on amount of mortgage.
Year 1 Interest Rate Payment = 114,000*11% = $12,540
Year 1 Principal Payment = 46,650.29 - 12540 = $34,110.29
Year 1 Ending Balance Amount = 114,000 - 34,110.29 = $79889.71
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Year 2 Interest Rate Payment = 79,889.71*11% = $8,787.87
Year 2 Principal Payment = 46,650.29 - 8,787.87 = $37,862.42
Year 2 Ending Balance Amount = 79,889.71 - 37,862.42 = $42,027.29
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Year 3 Interest Rate Payment = 42,027.29*11% = $4,623
Year 3 Principal Payment = 46,650.29 - 4,623 = $42,027.29
Year 3 Ending Balance Amount = 42,027.29 - 42,027.29 = 0
Year Beginning Balance Total Payment Interest Payment Principal Payment Ending Balance 1 $114,000 $46,650.29 $12,540 $34,110.29 $79,889.71 2 $79,889.71 $46,650.29 $8,787.87 $37,862.42 $42,027.29 3 $42,027.29 $46,650.29 $4,623 $42,027.29 0 Total Interest $25,950.87