Question

The information below provides details of an off-exchange tailor-made loan obtained by Royal Oceania Cruises to fund their operations.

• Today is June 30 2019, which is the initiation date of the loan.

• The Commonwealth Bank is loaning money to Royal Oceania Cruises.

• The amount borrowed is $50 million.

• The maturity date of the loan is three years.

• A minimum interest payment of $1 million is due in each financial year. The financial

  year ends on 30 June each year.

• The nominal interest rate associated with this loan is the Reserve Bank of Australia

  cash rate (as at June 30 2019) plus a margin of 3.75%. This interest rate is compounded monthly and is fixed from the initiation date.

  Assume the following payments are made by Royal Oceania Cruises during the term of the loan:

• Monthly repayments of $2 million at the end of each month beginning on January 31 2020 until April 30 2021 (inclusive).

• May 31 2021: a single payment of $2 million.

• April 30 2022: a single payment of $10 million.

  Given such payments, your job is to determine the outstanding value of the loan on the maturity date.

Answer 1

Ans.

Given Data

Loan Amount = $50,000,000

Initiation date of Loan = 30-06-2019

Years to maturity = 3 Years

Maturity date of loan =  30-06-2022

Nominal Interest Rate (annual) = Reserve Bank of Australia cash rate (as at June 30, 2019) + Margin

Where

Margin = 3.75%

Reserve Bank of Australia cash rate (as at June 30, 2019) = 1.5% (Taken from the Reserve Bank of Australia notification)

Hence Nominal Interest Rate (annual) = 3.75 + 1.5 = 5.25%

Since as per the term of loan, loan to be compunded monthly

The monthly interestrate = 5.25 ÷ 12 = 0.4375%

Statement of Repayment and Balances
Month	Opening Balance of loan (A)	Rate of interest (B)	Interest (C = A×B)	Repayment (D)	Closing Balance of Loan (A+C-D)
Jul-19	50000000	0.4375%	218750	0	50218750
Aug-19	50218750	0.4375%	219707	0	50438457
Sep-19	50438457	0.4375%	220668	0	50659125
Oct-19	50659125	0.4375%	221634	0	50880759
Nov-19	50880759	0.4375%	222603	0	51103362
Dec-19	51103362	0.4375%	223577	0	51326939
Jan-20	51326939	0.4375%	224555	2000000	49551495
Feb-20	49551495	0.4375%	216788	2000000	47768283
Mar-20	47768283	0.4375%	208986	2000000	45977269
Apr-20	45977269	0.4375%	201151	2000000	44178419
May-20	44178419	0.4375%	193281	2000000	42371700
Jun-20	42371700	0.4375%	185376	2000000	40557076
Jul-20	40557076	0.4375%	177437	2000000	38734513
Aug-20	38734513	0.4375%	169463	2000000	36903977
Sep-20	36903977	0.4375%	161455	2000000	35065432
Oct-20	35065432	0.4375%	153411	2000000	33218843
Nov-20	33218843	0.4375%	145332	2000000	31364176
Dec-20	31364176	0.4375%	137218	2000000	29501394
Jan-21	29501394	0.4375%	129069	2000000	27630462
Feb-21	27630462	0.4375%	120883	2000000	25751346
Mar-21	25751346	0.4375%	112662	2000000	23864008
Apr-21	23864008	0.4375%	104405	2000000	21968413
May-21	21968413	0.4375%	96112	2000000	20064525
Jun-21	20064525	0.4375%	87782	0	20152307
Jul-21	20152307	0.4375%	88166	0	20240473
Aug-21	20240473	0.4375%	88552	0	20329025
Sep-21	20329025	0.4375%	88939	0	20417965
Oct-21	20417965	0.4375%	89329	0	20507293
Nov-21	20507293	0.4375%	89719	0	20597013
Dec-21	20597013	0.4375%	90112	0	20687125
Jan-22	20687125	0.4375%	90506	0	20777631
Feb-22	20777631	0.4375%	90902	0	20868533
Mar-22	20868533	0.4375%	91300	0	20959833
Apr-22	20959833	0.4375%	91699	10000000	11051532
May-22	11051532	0.4375%	48350	0	11099883
Jun-22	11099883	0.4375%	48562	0	11148445

  Hence the outstanding value of the loan on the maturity date  $11,148,445 (Rounded off)