Question

Your company is planning to borrow $1.5 million on a 3-year, 10%, 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

Payment:	#
Asset Value = A
Down Payment = DP =
P = Principal Loan = (A - DP) =	$1,500,000.00
R = Rate or APR =	10.000000%
N = Number of payments =	3
PMT = Payment = P x R x (1+R)^N / ((1+R)^N - 1)
PMT = Payment =1500000 x 10% x (1+10%)^3 / ((1+10%)^3 -1) =	$603,172.21

Year	Opening balance of loan	Interest	Payment	Amortization of loan	Closing balance
Y	OP	I = OP x 10%	PMT	AM = PMT - I	CB
1	1,500,000.00	150,000.00	603,172.21	453,172.21	1,046,827.79
2	1,046,827.79	104,682.78	603,172.21	498,489.43	548,338.37
3	548,338.37	54,833.84	603,172.21	548,338.37	-

In second year loan of $ 498,489.43 was paid. (answer in dollar)

Or

In second year loan of $ 0.50 million was paid. (answer in million dollar)

(amortization to payment ratio = 498489.43/603172.21 = 82.64%)