AMORTIZATION Ex A Php 10000 loan will be amortized using equal payment every month for 1 year The interest is 6 compounded annually a Calculate the periodic payment - CODE PELAJAR

Question

AMORTIZATION Ex: A Php 10,000 loan will be amortized using equal payment every month for 1 year. The interest is 6% compounded annually. a.) Calculate the periodic payment.

Asked Nov 20 at 03:57

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Basic Answer

Step 1: Determine the periodic interest rate.

The annual interest rate is 6%, compounded annually. To find the monthly interest rate, we divide the annual rate by 12 (the number of months in a year):

Monthly interest rate = 6%/12 = 0.5% = 0.005

Step 2: Determine the number of periods.

The loan is amortized over 1 year, with monthly payments. Therefore, the number of payment periods is:

Number of periods = 1 year * 12 months/year = 12 months

Step 3: Calculate the periodic payment using the amortization formula.

The formula for calculating the periodic payment (PMT) of an amortized loan is:

PMT = P * (r * (1 + r)^n) / ((1 + r)^n – 1)

Where:

• P = Principal loan amount (Php 10,000)
• r = Periodic interest rate (0.005)
• n = Number of periods (12)

Let’s plug in the values:

PMT = 10000 * (0.005 * (1 + 0.005)^12) / ((1 + 0.005)^12 – 1)
PMT = 10000 * (0.005 * (1.005)^12) / ((1.005)^12 – 1)
PMT = 10000 * (0.005 * 1.0616778) / (1.0616778 – 1)
PMT = 10000 * 0.00530839 / 0.0616778
PMT ≈ 860.66

Final Answer

The periodic payment is approximately Php 860.66.