LONGER QUESTIONS You want to buy a car and a local bank will

LONGER QUESTIONS You want to buy a car, and a local bank will lend you $20,000. The loan will be fully amortized over 5 years and the nominal interest rate will be 12% what will be the annual loan payment? the remaining principal balance at the end of the fourth year? III. What will be the interest rate payment for the fifth year?

Solution

Use PMT function in Excel to determine Annual payments =PMT(12%,5,-20000,0,0)

I. 5548.19

2. 4953.75

3. 594.45

Year	Beg Balance	Total Pmt	Interest	Principal Paid	End Balance
1	20,000	5,548.19	2,400.00	3,148.19	16,851.81
2	16,852	5,548.19	2,022.22	3,525.98	13,325.83
3	13,326	5,548.19	1,599.10	3,949.10	9,376.73
4	9,377	5,548.19	1,125.21	4,422.99	4,953.75
5	4,954	5,548.19	594.45	4,953.75	0.00