Question

Your company is planning to borrow $1.75 million on a 5-year, 11%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Round your answer to two decimal places.

Answer 1

a.	Present Value of annuity of 1			=	(1-(1+i)^-n)/i		Where,
				=	(1-(1+0.11)^-5)/0.11		i	11%
				=	3.6959		n	5
b.	Annual payment			=	amount borrowed / Present value of annuity of 1
				=	$       17,50,000	/	3.6959
				=	$    4,73,498.04
c.	Loan Amortisation
	Year	Beginning balance			Annual Payment		Interest Expenses			Reduction of Principal			Ending Balance
	1	$ 17,50,000.00			$    4,73,498.04		$ 1,92,500.00			$ 2,80,998.04			$ 14,69,001.96
	2	$ 14,69,001.96			$    4,73,498.04		$ 1,61,590.22			$ 3,11,907.83			$ 11,57,094.13
	3	$ 11,57,094.13			$    4,73,498.04		$ 1,27,280.35			$ 3,46,217.69			$    8,10,876.44
	4	$    8,10,876.44			$    4,73,498.04		$     89,196.41			$ 3,84,301.63			$    4,26,574.81
	5	$    4,26,574.81			$    4,73,498.04		$     46,923.23			$ 4,26,574.81			$                  0.00
d.
		Payment at the end of Second Year			a		$ 4,73,498.04
		Less:Payment of interest			b		$ 1,61,590.22
		repayment of Principal ($)			c=a-b		$ 3,11,907.83
		repayment of Principal (%)			c/a		65.87%