Prepare an amortization schedule for a five-year loan of $60,000. The interest rate is 9 percent per

Prepare an amortization schedule for a five-year loan of $60,000. The interest rate is 9 percent per year, and the loan calls for equal annual payments. (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

Year	Beginning Balance	Total Payment	Interest Payment	Principal Payment	Ending Balance
1	$	$	$	$	$
2
3
4
5

 

How much interest is paid in the third year? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

Interest paid

$

The interest rate is 9 percent per year, and the loan calls for equal annual payments. How much total interest is paid over the life of the loan? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

 

Total interest paid

$

Explanation:

The payment for a loan repaid with equal payments is the annuity payment with the loan value as the PV of the annuity. So, the loan payment will be:

   

PVA = $60,000 = C {[1 – 1 / (1 + 0.09)5] / 0.09}

C = $15,425.55

  

The interest payment is the beginning balance times the interest rate for the period, and the principal payment is the total payment minus the interest payment. The ending balance is the beginning balance minus the principal payment. The ending balance for a period is the beginning balance for the next period.

 

In the third year, $3,514.19 of interest is paid.

Total interest over life of the loan = $5,400 + 4,497.70 + 3,514.19 + 2,442.17 + 1,273.67

Total interest over life of the loan = $17,127.74