Question

Your company is planning to borrow $1.5 million on a 9-year, 14%, 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

Repayment of Principal			$    1,06,307.94
Working:
a.	Present Value of annuity of 1			=	(1-(1+i)^-n)/i		Where,
				=	(1-(1+0.14)^-9)/.14		i	14%
				=	4.9464		n	9
b.	Annual Payment			=	Amount borrowed/Present Value of annuity of 1
				=	$        15,00,000	/	4.9464
				=	$          3,03,253
c.	Amortization Schedule:
	Year		Beginning balance		Interest expense		Yearly Payment		Reduction in principle			Ending Balance
	1		$ 15,00,000.00		$    2,10,000.00		$ 3,03,252.58		$                       93,252.58			$ 14,06,747.42
	2		$ 14,06,747.42		$    1,96,944.64		$ 3,03,252.58		$                   1,06,307.94			$ 13,00,439.49
	3		$ 13,00,439.49		$    1,82,061.53		$ 3,03,252.58		$                   1,21,191.05			$ 11,79,248.44
	4		$ 11,79,248.44		$    1,65,094.78		$ 3,03,252.58		$                   1,38,157.79			$ 10,41,090.65
	5		$ 10,41,090.65		$    1,45,752.69		$ 3,03,252.58		$                   1,57,499.89			$    8,83,590.76
	6		$    8,83,590.76		$    1,23,702.71		$ 3,03,252.58		$                   1,79,549.87			$    7,04,040.89
	7		$    7,04,040.89		$        98,565.72		$ 3,03,252.58		$                   2,04,686.85			$    4,99,354.04
	8		$    4,99,354.04		$        69,909.57		$ 3,03,252.58		$                   2,33,343.01			$    2,66,011.03
	9		$    2,66,011.03		$        37,241.54		$ 3,03,252.58		$                   2,66,011.03			$                  0.00