Question

To illustrate with the simplest case of annual payments, suppose you borrow $22,000 at 12 percent compound annual interest to be repaid over the next six years. Equal installment payments are required at the end of each year. In addition, these payments must be sufficient in amount to repay the $22,000 together with providing the lender with a 12 percent return. Please determine the annual payment, and amortization schedule.

Answer 1

Answer:

The annual payment is $ 5,350.97  as determined in the attached spreadsheet.

The amortization schedule is also attached

Explanation:

I used pmt formula in excel to determine the annual payment of $ 5,350.97.

The applicable formula is pmt(  rate,nper,-pv)

rate is the interest rate of 12%

nper is the duration of loan.6 years

pv is the present value of $22000

Having arrived at the annual repayment amount, I came up with an amortization,with interest  being charged on the opening balance,added to the opening balance and I deducted the periodic repayment amount to arrive at the loan outstanding balance at year end.