3. Creating an amortization schedule Aa Aa 000 to start a new business. He consi

Question

3. Creating an amortization schedule Aa Aa 000 to start a new business. He considers this loan to be an investment, and therefore requires his friend to pay him an interest raá also expects his friend to pay back the loan over the next four years by making annual payments at the end of each year. Ian texted of 6% on the loan. He t you help him calculate the annual payments that he should expect to receive so that he can recover his initial investment and earn the agreed-upon 6% on his investment. Calculate the annual payment and complete the following capital recovery schedule: Beginning Amount Interest Paid Principal Paid Year Payment Ending Balance 1 $45,000.00 -$0.02 Fiash Payer WIN 29,0,1 33341 2004-2016 Aplia All rightsreserved Grade It Now Save & Centinue 2013 Cengage Learing except as noted. All rights reserved Continue withour saving

Explanation / Answer

Beginning

Amount

(a)

Payment

(b)

Interest paid

( c = {a * 0.06})

Principal paid

d= ( b - c)

Balance

e = (a-d)

Annual payment = Principal Amount / PVIFA

= 43000 / 3.4651

= 12986.62

Interest = Principal amount * Interest rate

= 43000 * 0.06

= 2700

Principal paid = Annual payment - Interest paid

= 12986.02 - 2700

= 10286.02

Balance at end = 45000 - 10286.02

= 34713.38

PVIFA = (1 - (1 + r)^-n) / r

= ( 1 - (1+ 0.06)^-4) / 0.06

= 3.4651

Year

Beginning

Amount

(a)

Payment

(b)

Interest paid

( c = {a * 0.06})

Principal paid

d= ( b - c)

Balance

e = (a-d)

1 45000 12986.62 2700 10286.62 34713.38 2 34713.38 12986.62 2082.803 10903.82 23809.56 3 23809.56 12986.62 1428.574 11558.05 12251.52 4 12251.52 12986.62 735.091 12251.53 -0.01

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