Answer to Question #274531 in Financial Math for Eg Cuya

Question

CREATE AN AMORTILIZATION SCHEDULE USING THE FOLLOWING INFORMATION

Present Value: 25,000

Interest: 3% compounded monthly

A. Create an amortilization schedule if the payment should be done every end of the month for 1 year

B. Create an amortilization schedule if the payment should be done every beginning of the month for 1 year

Answer 1

A. Create an amortilization schedule if the payment should be done every end of the month for 1 year

If payment is done at end of every month; the amount at the end of each month will be calculated using the formula;

$A=P(1+r)^n$

Interest is calculated by using the formula; $P(1+r)^n-P$

For the first month;

$P(1+r)^n-P$= $25000(1+0.03)^1-25000=750$

The armotilization schedule will be as shown below;

B. Create an amortilization schedule if the payment should be done every beginning of the month for 1 year

If payment is done at beginning of every month; the amount at the end of each month will be calculated using the formula;

The principal at the beginning of the first month if payment is done at the start will be;

$P=25000+750=25750$

the amount at the end of each month will be calculated using the formula;

$A=P(1+r)^n$

Interest is calculated by using the formula; $P(1+r)^n-P$

For the first month;

$P(1+r)^n-P$= $25750(1+0.03)^1-25000=772.5$

The armortilization schedule will be as shown below;