A sum of rm50000 is to be repaid over a 5 year period...

A sum of RM50,000 is to be repaid over a 5-year period through equal installments made at the end of each year. If an interest rate of 8% per year is charged on the unpaid balance and interest calculations are made at the end of each year, determine the size of each installment so that the loan (principal plus interest charges) is amortized at the end of 5 years. Verify the result by displaying the amortization schedule.

Transcript

00:01 So in this problem, we are doing an amortized loan over five years, and we're doing a principal of $50 ,000, our loan amount.

00:22 We'll put a comma on it.

00:25 And our interest each year is eight, and we're doing our installments at the end of each year, which means this is an ordinary annuity happening, and the interest is charged at the end of the year on the unpaid balance at that point.

00:53 And so we want to know what, of course, the equal payments are.

00:59 Oh, let's do this.

01:00 Let's do years here next.

01:03 We're going five years.

01:06 And we want to know what our payments are going to be.

01:15 Okay, so in excel, which is where i'm working this at, i could say equals pmt.

01:21 That's the payment.

01:24 And the rate will be here.

01:28 The yearly interest rate.

01:30 The number of periods is going to be here, the number of years that we're doing.

01:36 And the present value will be that 50 ,000 that we're borrowing.

01:41 That's all we need to tell it.

01:43 So there's our annual payments, 12 ,52282.

01:50 Next, we're asked to prove this with, or to show this with an amortization schedule.

01:56 So what we do is we say year, here.

02:04 Then we'll say, beginning balance and we will expand this column a little bit here let me expand it back to about there then we'll put how much our payment is we'll put the end let's see we'll take the payment there and we'll say the interest and we'll have the ending balance then we got a year one two three three three, four, five.

03:23 Beginning balance, that's going to be the $50 ,000 that we borrowed, right? then the payment we make is going to be that.

03:43 And i want to lock that down, because i want to make the same payment all the way down.

03:48 So i just copy this down, okay? and the interest i'm being charged is going to be the beginning balance minus that payment times.

04:05 I'm charged for that year.

04:16 And i want to lock down that 8 % reference.

04:21 Okay.

04:24 And so the ending balance then is going to be beginning minus the payment plus the interest.

04:39 Oops...

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