Question

Ian loaned his friend $30,000 to start a new business. He considers this loan to be an investment, and therefore requires his friend to pay him an interest rate of 8% on the loan. He also expects his friend to pay back the loan over the next four years by making annual payments at the end of each year. Ian texted and asked that you help him calculate the annual payments that he should expect to receive so that he can recover his initial investment and earn the agreed-upon 8% on his investment. Calculate the annual payment and complete the following capital recovery schedule:

Answer 1

Payment = Pmt(8%, 4, -30000) = $9,057.62

Interest Paid = Beginning amount * 8%

Principal paid = Payment - Interest Paid

End Balance = Beg Amount - Payment

Payment Beg Amount Payment Interest paid Principal paid End Balance

1 30,000 $9,057.62 2,400 6,657.64 23,342.38

2 23,342.38 $9,057.62 1,867.39 7,190.23 16,152.14

3 16,152.14 $9,057.62 1,292.12 7,765.45 8,386.69

4 8,366.39 $9,057.62 670.94 8,386.69 -