$14,000 loan at 6% compounded monthly is repaid by monthly payments over four years

a) Computation of Size of Monthly Payment using PMT Function in Excel:

=pmt(rate,nper,-pv,fv)

Here,

PMT = Monthly Payment = ?

Rate = 6%/12 = 0.50%

Nper = 4 years * 12 months = 48 months

PV = $14,000
FV = 0

Substituting the values in formula:

=pmt(0.50%,48,-14000,0)

PMT or Monthly Payment = $328.79

b) Computation of Principal Portion of the 25th Payment:

First we calculate Outstanding Balance after 24th Payment using PV Function in Excel:

=-pv(rate,nper,pmt,fv)

Here,

PV = Outstanding Balance after 24th Paymnent = ?

Rate = 6%/12 = 0.50%

Nper = 48-24 = 24 months

PMT = $328.79

FV = 0

Substituting the values in formula:

=-pv(0.50%,24,328.79,0)

PV or Outstanding Balance after 24th Payment = $7,418.44

Interest on 25th Payment = $7,418.44*0.5% = $37.09

Principal Portion of the 25th Payment = $328.79 - $37.09 = $291.70