Question

Activity: Amortization Payment

Cedric purchased a new fishing boat for

P130,000. He made a P20,000 down payment, and financed the balance at his bank

for 7 years. What amortization payments are required every 3 months, at 16%

interest, to pay off the boat loan?

2.Cameron Manufacturing recently purchased a new

computer system for P150,000. What amortization payment is required each month,

at 12% interest, to pay off this obligation in 8 years?

3The Clintons bought a home for P12,050,000.

After a 15% down payment, the balance is financed at 8% interest for 9 years.

(a) What equal quarterly payments will be required to amortize this mortgage

loan? (b) What is the total amount of interest the Clintons will pay on the

loan?

Answer 1

1.

Loan amount(PV)=Price of a new fishing boat - Down payment

$=130,000-20,000\\=P110,000$

$Rate=\frac{Interest\space rate}{ Periods \space of\space compounding}$

$=\frac{16\%}{4}$

$=4\%$

Number of periods (Nper) = Loan term $\times$ Periods of compounding

$=7\times 4\\=28$

We can compute the periodic payments by using the PMT function in Excel. The PMT function can be used as follows:

$=PMT(rate,nper,pv,[fv],[type])\\ =PMT(4\%,28,-110000)\\ =P6,601.43$

2.

Present value (PV)=P150,000

$Rate=\frac{Interest\space rate}{ Periods \space of\space compounding}$

$=\frac{12\%}{12}$

$=1\%$

Number of periods (Nper) = Loan term $\times$ Periods of compounding

$=8\times12\\=96$

We can compute the periodic payments by using the PMT function in Excel. The PMT function can be used as follows:

$=PMT(rate,nper,pv,[fv],[type])\\ =PMT(1\%,96,-150000)\\ =P2,437.93$

3.

(i)

Loan amount(PV)=Price of a home - Down payment

$=12,050,000-(15\%\times12,050,000)\\=P10,242,500$

$Rate=\frac{Interest\space rate}{ Periods \space of\space compounding}$

$=\frac{8\%}{4}$

$=2\%$

Number of periods (Nper) = Loan term $\times$ Periods of compounding

$=9\times 4\\=36$

We can compute the periodic payments by using the PMT function in Excel. The PMT function can be used as follows:

$=PMT(rate,nper,pv,[fv],[type])\\ =PMT(2\%,36,-10,242,500)\\ =P401,842.49$

(ii)

Total amount of payments = Quarterly payments $\times$ Number of periods

$=401,842.49\times 96\\=P14,466,329.74$

Total amount of interest = Total amount of payments - loan amount

$=14,466,329.74-10,242,500\\=P4,223,829.74$