Applies TVM techniques to real problems Peter is considering making a loan of $5

Question

Applies TVM techniques to real problems

Peter is considering making a loan of $500,000 to Paul. It is a three-year loan with annual payments due at the end of each year and a 7% annual interest rate. Find the payments that would be required to amortize the loan over the three-year period and then prepare an amortization schedule to demonstrate how the loan will be fully paid off in three years.

Year

Beginning Balance

Payment

Interest Paid

Principal Paid

Ending Balance

1

$500,000.00

2

3

(20 points)

Applies TVM techniques to real problems

Peter is considering making a loan of $500,000 to Paul. It is a three-year loan with annual payments due at the end of each year and a 7% annual interest rate. Find the payments that would be required to amortize the loan over the three-year period and then prepare an amortization schedule to demonstrate how the loan will be fully paid off in three years.

Year

Beginning Balance

Payment

Interest Paid

Principal Paid

Ending Balance

1

$500,000.00

2

3

(20 points)

Explanation / Answer

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Year Beginning Balance Payment=
PMT(7%,3,-500,000) Interest Paid=Beginning Balance*7% Principal Paid =PMT-Interest Part of PMT Ending Balance=Beginning balance - Principal part of PMT 1 $500,000.00 $190,525.83 $35,000.00 $155,525.83 $344,474.17 2 $344,474.17 $190,525.83 $24,113.19 $166,412.64 $178,061.53 3 $178,061.53 $190,525.83 $12,464.31 $178,061.53 $0.00

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