Question

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

Answer 1

To get installments we use;

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

PV$=$ 50000

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

n $=$ the time which is 3

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

PMT $=$ 17085.06

To get interest for year 1

50000$\times$ 0.0125

$=$ 625

P$=$ installment $-$ interest

17085.06$-$ 625$=$ 16460.06

Outstanding balance is 50000$-$ 16460.06

$=$ 33539.94

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