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Problem) Monthly payment of P 1,500 is used to settle a loan for 7 months at 18% compounded monthly
Problem) Monthly payment of P 1,500 is used to settle a loan for 7 months at 18% compounded monthly. Find the present value of the loan and construct the amortization schedule
Expert Solution
Answer) Calculation of Present value of Loan :
Present Value of annuity = Periodic payment * { [1 - (1+r)^-n ] / r }
Where,
Periodic payment = 1500
r is rate per period i.e ==> 18% or 0.18 / 12 = 0.015
N is number of payments ==> 7
Present value of annuity = 1500 * { [1- (1+0.015)^-7 ] / 0.015 }
By solving,
Present value of annuity = $9897.32
Amortization Schedule is shown below :
| Payment | Opening Balance | EMI | Interest | Principal Portion | Closing Balance |
| 1 | 9897.32 | 1500 | 148.46 | 1351.54 | 8545.78 |
| 2 | 8545.78 | 1500 | 128.19 | 1371.81 | 7173.97 |
| 3 | 7173.97 | 1500 | 107.61 | 1392.39 | 5781.58 |
| 4 | 5781.58 | 1500 | 86.72 | 1413.28 | 4368.30 |
| 5 | 4368.30 | 1500 | 65.52 | 1434.48 | 2933.83 |
| 6 | 2933.83 | 1500 | 44.01 | 1455.99 | 1477.83 |
| 7 | 1477.83 | 1500 | 22.17 | 1477.83 | 0.00 |
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