Question

Construct an amortization schedule for a 3 year loan of 50000 at 5% interest , which is to be repaid in quaterly installment over 3 years.

Answer 1

To get installments we use the following formula:

PV$=$ PMT$($ $\frac {1-(1+r)^{-n}}{r})$

PV$=$ 50000

r$=$ interest rate$($ 0.05/4$)$$=$ 0.0125

n is the time (3)

50000$=$ PMT$($ $\frac {1-(1+0.0125)^{-3}}{0.0125}$ $)$

PMT$=$ 17085.06

To get interest for year 1

5000$×$ 0.0125$=$ 625

Principal$=$ Installment $-$ Interest

17085.06$-$ 625$=$ 16460.06

Outstanding balance$=$ 50000$-$16460.06$=$ 33539.94

For year 2 we will use first year's balance to calculate interest. Repeat the same for year 3