I chose table 2-4 Loan Amortization Schedule, $100,000 at 6% for 5 years to discuss. Table 2-4 relates to the other two tables in that it is the opposite of the other two tables. Table 2-4 illustrates paying down an initial amount borrowed, where the other two tables illustrate either the present or future value of money invested.
If one were to use a calculator to solve the amortization of a loan, we would input N= length of the loan, I/YR= interest rate, initial loan amount, PV=100000, and the ending value or FV=0 (Brigham & Houston,2007).
If one were to use Microsoft Excel to solve the problem, I would list the length of the loan vertically and horizontally would be the Beginning amount, payment amount, interest, amount paid to principal and the ending balance.
My example: If I were to take out an auto loan for $16,000 at 5% and it had to be repaid in 4 years:
|
Year
|
Beginning Amount
|
Payment
|
Interest
|
Repayment of Principal
|
Ending Balance
|
|
1
|
$16,000
|
$4512.19
|
$800
|
$3712.19
|
$12287.81
|
|
2
|
12287.81
|
$4512.19
|
614.39
|
3897.80
|
8390.01
|
|
3
|
8390.01
|
4512.19
|
419.50
|
4092.69
|
4297.32
|
|
4
|
4297.32
|
4512.19
|
214.87
|
4298.32
|
$0
|
Initially, I solved this problem using my financial calculator to find the payment amount. Then I figured out the interest on year one (16000x.05), I subtracted the interest from the payment amount to find the principal. I subtracted the principal payment from the beginning amount to get the ending balance. I then carried the ending balance to the next line to use as the starting figure and went from there.