LOAN AMMORTIZATION 2 Loan Amortization The term refer to the determination of equal periodic loan payment. These payments provide a lender with interest return and repay the loan principal over a specified period. Ex : you borrowed 6000BD from a banks for 4 years, the bank charged you 10% interest and asked you to pay the loan back in 4 equal end of year payments. Required: prepare a loan amortization table showing the details of the loan and the interest payment each year for 4 years CF=( Pvxi)/1- 1/(1+i) n CF-6000 x 10%)/1- 1/(1+0.1) 4 - 1/(1.1) 4 CF = 600 / 1-1/1.4641 CF = 600 / 1-0.683014 = 600/0.316986544 = .1892.82. Amount of each payment We set up the below loan amortization table: Payments Interest 10.10(1) End of year (3) Beginning of year Principal Principal |(2)-(3) (1) Loan payment End of year I(1)-(4) (5) 1 600.00 2 6000 1892.28 1292.82 4707.18 4707.18 1892.82 1422.10 3285.08 3285.08 1892.28 1564.31 1721.77 1720.77 1892. 82 1720.74 470.72 328.51 172.08 Home work You borrowed 10000BD from a bank at 8% interest rate to be paid back in 5 equal end of year installment. Required to prepare the loan amortization table